S&P cuts UAP ratings

Standard & Poor's said it lowered its corporate credit rating on United Agri Products Inc. to B from B+ and lowered the rating on UAP's existing $500 million senior secured revolver to B+ from BB-.

S&P said the lower ratings reflect the company's anticipated more aggressive financial profile after its parent company, UAP Holdings Corp., proposed a $625 million issuance of income deposit securities.

At the same time, S&P assigned a rating of CCC to the senior subordinated notes of UAP Holdings Corp. The ratings on UAP Holdings' existing senior discount notes have been lowered to CCC+ from B-, while the ratings on United Agri Products' senior unsecured notes have been lowered to B- from B. However, these ratings will be withdrawn upon issuance of the income deposit securities, which will be used to retire the debt.

S&P said it believes that the IDS structure reflects a more aggressive financial policy. Previously, UAP did not pay dividends on its common stock. However, as a result of the IDS offering, UAP will be distributing roughly 75% of its cash flow as interest and dividends, thereby materially reducing financial flexibility.

S&P said it has assigned its B+ senior secured bank loan rating and a 1 recovery rating to UAP's proposed $500 million asset-based loan facility due 2009. The $150 million second-lien term loan is assigned a B bank loan rating and a recovery rating of 2.

S&P also assigned its CCC rating to UAP's proposed $320 million senior subordinated notes due 2014.

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