November 1, 2017 / 8:33 PM / a year ago

Fitch Rates Coca-Cola Southwest Beverages LLC's Proposed Private Placement Offering 'A(exp)'

(The following statement was released by the rating agency) MONTERREY, November 01 (Fitch) Fitch Ratings has assigned a rating of 'A(exp)' to Coca-Cola Southwest Beverages LLC's (CCSWB) proposed private offering of senior notes for up to USD600 million due up to 2032. The company will use the proceeds to repay existing indebtedness. The planned notes will be irrevocably and unconditionally guaranteed by its parent company, AC Bebidas, S. de R.L. de C.V. (A/Stable) and will rank pari passu with all other indebtedness. The rating of the proposed private placement notes reflects the credit profile of the guarantor and Fitch's view of strong legal, operational and strategic ties between CCSWB and AC Bebidas. Fitch's ratings of AC Bebidas's take into account the solid business position of its beverage business as one of the largest bottlers of Coca-Cola products in the world with geographically diversified operations in Latin America and the southwestern U.S., combined with a solid financial position. The ratings also incorporate the strong legal and operational ties between AC Bebidas and its parent company Arca Continental, S.A.B. de C.V. (A/Stable), which holds an 80% equity stake, and its strategic relation with The Coca-Cola Company, which owns the remaining 20%. KEY RATING DRIVERS Solid Market Position in Beverages: AC Bebidas' ratings consider its solid position as the leading bottler of Coca-Cola products in northern and western Mexico, southwestern U.S., northern Argentina, Ecuador and Peru. The company's solid market shares in its main territories are supported by a diversified portfolio of products and well-recognized brands, as well as a broad distribution network, all of which provide a competitive advantage against its competitors. Fitch believes AC Bebidas' business position is sustainable in the long term by its strong brand equity, continuous innovation in products and presentations to capture consumer trends, heavy investment and execution at the point of sale and its participation in an industry more resilient to economic downturns. Balanced Geographic Diversification: Fitch views the geographical diversification of AC Bebidas' operations as a positive for the company's credit profile. on a pro forma basis Fitch estimates that EBITDA contribution per region is approximately 48% from Mexico, 29% from South America and 23% from the U.S. During 2017, the company expanded its operations to the U.S. and expects to capture synergies of around USD60 million-USD80 million over the next three years. In addition, Fitch anticipates the company will benefit from its access to hard-currency revenue and will counterbalance its exposure between mature and emerging markets, resulting in less business risk and cash flow volatility. Growth of Non-Carbonated Drinks: Fitch also considers the gradual growth of non-carbonated drinks (NCSD) in the parent company's product portfolio. While carbonated soft drinks (CSD) dominate the company's sales volume, the consumption of alternative categories such as water, juices, teas, isotonics, and juices, among others, is expected to continue growing at a faster pace than CSD. Approximately 18% of AC Bebidas' pro forma total sales volume, excluding jug water, comes from water and still beverages products. Fitch believes the company is well positioned to capture growth in these categories given its offering of products as consumer preferences move to more healthy beverages. In addition, the company has been reformulating some of its products in the CSD category by introducing alternative non-sugar presentations. Lower Profitability: AC Bebidas' pro forma profitability is expected to decline in 2017 as a result of the integration of territories in the U.S., which have lower margins, as well as pressure from higher costs related to sweetener distribution cost and concentrate, and exchange rate effects. Fitch believes the pressure on higher costs will gradually be mitigated by pricing initiatives and internal efficiencies, while the potential synergies from integrating the U.S. operations will be reflected in better margins over the mid to long term. On a pro forma basis Fitch forecasts that for 2017, including full-year results of U.S. operations, AC Bebidas' revenues will grow to around MXN142 billion and an EBITDA margin of approximately 19%. Low Net Leverage: Fitch expects AC Bebidas' net adjusted debt - by rents and factoring/EBITDAR will be close to 1.0x in the mid-term. As of Sept. 30, 2017, total adjusted debt calculated by Fitch including factoring was MXN45.5 billion. Fitch projects that pro forma for 2017 AC Bebidas' adjusted gross and net leverage will be around 1.8x and 1.5x, respectively. Theses metrics should gradually decline in the next 18-24 months to around 1.5x and 1.0x, respectively, as a result of moderate debt reduction and higher EBITDA. Strong FCF: Fitch expects AC Bebidas will maintain positive FCF over the mid-term. Fitch projects the company will have annual pro forma FCF generation capacity of over MXN4 billion in 2017-2018. In its base case projection, Fitch uses capex of MXN9.2 billion in 2017 and MXN10.4 billion in 2018, as well as annual dividends in the range of MXN3.5 billion-MXN3.7 billion, starting 2018.. DERIVATION SUMMARY CCSWB's ratings on its private placement notes are supported by the credit profile of AC Bebidas, which is well positioned relative to peers as the second-largest bottler of Coca-Cola product in Latin America and one of the largest in the world. The company's credit profile is considered stronger than other beverages companies such as Coca-Cola Femsa, S.A.B. de C.V. (A-/ Stable) and Embotelladora Andina S.A. (BBB+/Stable) given lower exposure of its EBITDA generation to countries in the 'B' or 'BB' category. Its leverage metrics are expected to be maintained at lower levels than its peers across the business cycle. The parent/subsidiary linkage was applied by Fitch, as AC Bebidas has strong legal and operational ties with its parent Arca Continental. No country-ceiling or operating environment aspects had an impact on our rating. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for AC Bebidas include: --Pro forma revenue of around MXN142 billion in 2017, growing at 5% in 2018; --EBITDA margin at around 19% in 2017-2018; --Capex around MXN9.2 billion in 2017 and MXN10.4 billion in 2018; --Annual FCF over MXN4 billion in 2017-2018; --Pro forma net adjusted leverage ratio gradually decreasing to 1x in the next 18-24 months. RATING SENSITIVITIES Future Developments That May, Individually or Collectively, Lead to Positive Rating Action Fitch does not foresee positive ratings actions for CCSWB's private placement notes over the medium term given the current rating levels of AC Bebidas. Future Developments That May, Individually or Collectively, Lead to Negative Rating Action The ratings of CCSWB's private placement notes would be pressured by negative rating actions on its guarantor. AC Bebidas' ratings could face pressure from a combination of one or more of the following: deterioration of profitability margins below the industry's average; negative FCF through the business cycle, significant debt-financed acquisitions, or pro forma net adjusted leverage in 1.5x on a sustained basis. LIQUIDITY AC Bebidas' liquidity is sound. As of Sept. 30, 2017, the company's cash balance was MXN2.5 billion with MXN1.6 billion of short-term debt, which includes MXN1.1 billion of factoring with suppliers. Fitch believes the company will enhance its debt maturity profile following the repayment of debt with the proceeds expected from the private placement issuance of of its subsidiary, CCSB. FULL LIST OF RATING ACTIONS Fitch currently rates AC Bebidas as follows: -- Long-Term Foreign and Local Currency Issuer Default Rating 'A'; --National scale long-term rating 'AAA(mex)'; --Certificados Bursatiles local issuances 'AAA(mex)'. The Rating Outlook is Stable. Contact: Primary Analyst Rogelio Gonzalez Director +52-8399-9100 Fitch Mexico S.A. de C.V. Prol. Alfonso Reyes 2612 Monterrey, N.L., Mexico Secondary Analyst Maria Pia Medrano Associate Director +52-55-5955-1600 Committee Chairperson Alberto Moreno Senior Director +52-8399-9100 Summary of Financial Statement Adjustments - --Operating leases are treated as debt-like obligations and gross rent expense is capitalized using a multiple of 6x. --Factoring with suppliers is treated as debt. Media Relations: Benjamin Rippey, New York, Tel: +1 646 582 4588, Email: Additional information is available on Applicable Criteria Corporate Rating Criteria (pub. 07 Aug 2017) here Parent and Subsidiary Rating Linkage (pub. 31 Aug 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below