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23 Dec 2005
MOODY'S COMMENTS ON ALLIED DOMECQ RATINGS REVIEW. SENIOR UNSECURED RATING OF PERNOD RICARD IS Baa3 ON AN UNGUARANTEED BASIS
Paris, December 23, 2005 -- Moody's commented today the rating review of Allied Domecq ratings
and indicated that:
- The Baa3 senior unsecured ratings of Allied Domecq Limited and
guaranteed subsidiaries should be confirmed if Pernod Ricard SA decides
to issue an unconditional guarantee in favour of Allied Domecq bonds.
- The senior unsecured ratings of Allied Domecq Limited and guaranteed
subsidiaries should be downgraded by 1 notch if Pernod Ricard does not
issue such a guarantee.
At the same time Moody's indicates that the senior unsecured rating
of Pernod Ricard is Baa3 both on a guaranteed and unguaranteed basis (the
guarantee being the upstream guarantee by subsidiaries).
A rating review for downgrade of Allied Domecq Limited ratings was initiated
in April 2005, when Pernod Ricard announced its bid on Allied Domecq
and pursued in July 2005, after a downgrade of Allied Domecq ratings
to Baa3 at the same time a first time rating was published for Pernod
Moody's commented the rationale for the potential conclusion of
In case the bonds of Allied Domecq would be guaranteed by Pernod Ricard
SA, a rating confirmation would reflect:
(1) the current integration of Allied Domecq Limited within Pernod Ricard
Group and the fact that the businesses of Allied Domecq, which will
remain within Pernod Ricard after various disposals in particular to Fortune
Brands, will be managed as one business;
(2) the guarantee of Pernod Ricard SA to Allied Domecq bonds ensuring
a recourse to the Group holding company.
Nevertheless Moody's cautions that in this case Allied Domecq bondholders
would remain partially subordinated to bank lenders that will benefit
from a number of upstream guarantees issued by material subsidiaries of
- a number of Allied Domecq subsidiaries which represent through
themselves or various of their own operating subsidiaries most of the
cash-flows of Allied Domecq brands and businesses
- some Pernod Ricard existing subsidiaries prior to Allied acquisition.
Overall these subsidiaries may represent about half of the group cash-flows.
This debt structure creates a degree of subordination that Moody's
analyses as structural subordination. Taking into account that
bank debt represents a high portion of the group debt, around 75%
expected in June 2006 after announced assets disposals of the group debt,
the degree of structural subordination is estimated to be analytically
equivalent to around 40% of the group's debt, which
in normal circumstances could warrant a notching, though this is
somewhat tempered by the investment grade level of Pernod Ricard.
More importantly this would be mitigated by the expectation of Moody's
that over time the structural subordination is likely to disappear because
the bank documentation would enable a removal of these guarantees once
a ratio of net debt / EBITDA falls below 4 or once the ratings of Pernod
Ricard by Moody's and another rating agency reaches a level equivalent
to Baa2 by both agencies. The level of 4 for the ratio is likely
to be reached around 2008.
Nevertheless Moody's indicates that if Pernod Ricard's rating
was to be downgraded in the future, Moody's would probably
assign a Corporate Family Rating at Ba1 (barring any multinotch downgrade)
and the senior unsecured rating of Pernod Ricard and of Allied Domecq
would expectedly be downgraded by 2 notches to Ba2, reflecting structural
subordination and the lower probability of a removal of upstream guarantees.
In case Allied Domecq bonds are not guaranteed by Pernod Ricard,
Allied Domecq senior unsecured ratings will be downgraded by one notch
to Ba1 reflecting deep structural subordination and the absence of recourse
to Pernod Ricard SA. Moody's indicates also that if Pernod
Ricard's rating was to be downgraded (barring any multinotch downgrade),
Moody's would probably assign a Corporate Family Rating at Ba1 and
the senior unsecured rating of Pernod Ricard would expectedly be downgraded
to Ba2 and the senior unsecured rating of Allied Domecq would expectedly
be downgraded to Ba3, reflecting structural subordination,
the lower probability of a removal of upstream guarantees and the absence
of recourse to Pernod Ricard. In addition Moody's would have
to assess the information flow to ensure that a sufficient level is available
to monitor the rating of Allied Domecq.
In addition Moody's comments that the outlook of Pernod Ricard Baa3
rating remains negative as of today but a stabilization could be considered
after the finalisation of FYE 2006 results, i.e. after
the completed disposals of the quick service restaurants businesses that
Pernod Ricard has agreed to sell for a consideration of US$2.4
billion and provided the operating performance is satisfactory after the
integration phase. Moody's also notes that the management
is increasingly confident that synergies achievement will progress quicker
than expected and for a cost well within the plans.
Pernod Ricard, incorporated in Paris, is a leading worldwide
alcoholic beverages company with proforma sales of EUR6.1billion
after the acquisition of Allied Domecq and expected disposals.
VP - Senior Credit Officer
European Corporate Finance
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Eric de Bodard
European Corporate Finance
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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