The Iowa Fertilizer Co. LLC’s $1.16 billion of outstanding Midwestern Disaster Area revenue bonds won an upgrade due to the stabilization of operations at the company’s nitrogen production plant.
Fitch Ratings raised the rating on the bonds that sold in various series in 2013, 2016, 2018, and 2019 to B from B-minus and assigned a stable outlook.
“The project has achieved a strong production rate, and operationally is positioned to achieve stable margins assuming it can maintain its operating profile and control costs while the pricing levels remain stable,” Fitch said of the decision to raise the rating to a higher speculative grade.
The project has achieved a stable production profile and is generating sufficient operating cash flows with an expected long-term financial profile consistent with the rating, Fitch added.
Last summer, the project completed a turnaround that was focused on improving operational efficiencies and de-bottlenecking activities to meet growing demand. The plants since have been running at high and stable levels and the ammonia and urea synthesis plants have set new production records well above nameplate capacity, Fitch said.
Fiscal risks that would influence its ability to repay the bonds remain. Nitrogen fertilizer pricing is tied to the price of feedstock, which may be oil, coal, or natural gas depending on the region and producer.
“The facility remains vulnerable to a volatile and potentially weak product pricing environment,” Fitch said. “Favorably, access to abundant and advantageously priced feedstock partially mitigates margin risk.”
IFCo sells its nitrogen products to farmers, distributors, wholesalers, cooperatives, truck stop operators and blenders at market prices.
Debt service coverage ratios are averaging 1.4 times through debt maturity. “The project has sufficient liquidity available in the form of various reserve funds and a working capital facility to mitigate short-term liquidity issues,” Fitch said.
After construction and financing struggles, the company launched production in 2017 and also reported that the Internal Revenue Service had closed an examination of its nearly $1.2 billion interim and nearly $1.2 billion permanent financing without a change in their tax-exempt status.
The $3 billion plant in southeast Iowa benefitted from the Midwestern Disaster bond allocation through the Iowa Finance Authority in addition to $100 million in state and $30 million in local public subsidies.
Officials touted the project as one of the largest private sector construction projects in Iowa’s history and the first world-scale, greenfield nitrogen fertilizer facility built in the country in more than 25 years that was worth the tax breaks because it creates thousands of jobs. Critics countered the money could have been better invested elsewhere.
