Fitch downgrades FMC outlook due to leverage concerns

Investing.com - Fitch Ratings downgraded FMC Corporation’s (NYSE:FMC) rating outlook from stable to negative on Thursday and affirmed its long-term issuer default rating at “BB+”. The agency also confirmed FMC’s senior unsecured bond rating at “BB+”, with recovery rating at “RR4”, short-term issuer default rating and commercial paper rating at “B”, and subordinated bond rating at “BB-” / “RR6”.

The negative outlook reflects that if FMC is unable to reduce debt through asset sales or commercial transactions, its EBITDA leverage ratio could exceed the downgrade threshold of 4.5 times. The outlook also reflects the uncertainty stemming from FMC considering strategic options, including the potential sale of the company. The “BB+” issuer default rating reflects increased competition in the generic pharmaceutical market and the resulting pressure on profitability and cash flow, leading to a high leverage ratio being maintained over an extended period.

Fitch expects that due to declining EBITDA and negative free cash flow after dividends, the leverage ratio will exceed 4.5 times in 2025 and remain high until 2028. Although the leverage ratio is expected to decline starting in 2026 due to debt reduction efforts, Fitch anticipates that operational weakness will persist in 2026, as the short-term gains from a growth-oriented product portfolio can only partially offset the pressures from generic competition and the increased working capital requirements to meet competitor payment terms. Fitch believes that FMC will be unable to achieve meaningful debt reduction if it does not successfully reach licensing agreements on certain intellectual property.

Increased penetration of generics in Latin America is putting pressure on the prices and sales of branded products Rynaxypyr and Cyazypyr, which together account for about 30% of revenue. FMC announced a manufacturing restructuring plan expected to cut approximately $175 million in operating costs annually and improve its competitive position. The company is shifting its growth focus toward new active ingredients that are data-protected, which face less pressure from generics.

FMC’s dividend cut will reduce cash expenditures by approximately $250 million annually starting in 2026. Fitch expects that the reduced dividend burden will enable the company to better manage restructuring costs and higher interest expenses, achieving roughly break-even free cash flow in 2026, with potential improvements over time. This rating is supported by FMC’s position as a leading global crop protection company, with a diversified product portfolio, geographic footprint, and crop exposure.

This article was translated with the assistance of artificial intelligence. For more information, please see our terms of use.