MOODY’S CONFIRMS RATINGS OF ANHEUSER-BUSCH COMPANIES, INC. (SENIOR AT A1/P-1); CHANGES OUTLOOK TO STABLE FROM POSITIVE AND ASSIGNS BANK LOAN RATING AT A1
Moody’s confirmed the A1/Prime-1 ratings of Anheuser-Busch Companies, Inc. (BUD) and changed the rating outlook to stable from positive, as well as assigning an A1 rating to the company’s $2 billion bank revolving credit facility.
The change in outlook to stable reflects the fact that, although BUD’s valuable beer franchise and cash flow from operations continue to strengthen, the company’s long-articulated financial policy of maintaining gross cash flow to debt in the 30 to 40% range results in ongoing debt financed share repurchases. Thus, as the company’s cash flows grow, total debt continues to creep upward, while retained cash flow measures after share repurchases are not consistent with the Aa rating category. Retained cash flow after Capex, dividends and repurchases is consistently negative and share repurchases have accelerated in recent years, to about $2 billion in 2002 and 2003
BUD’s A1 rating reflects its strong leadership position in the US beer market with a share that has grown to 50%, steadily improving profitability, large and growing cash flows, and a conservative approach to acquisitions to date. BUD has considerable competitive advantages, including highly efficient production facilities; pricing leadership; substantial economies of scale; successful marketing and sales programs and effective advertising creative; the industry's strongest portfolio of brands; and a solid dedicated distribution network. The company has very strong operating performance and faces an attractive demographic environment for its product for the foreseeable future. All of these strengths position the company solidly in the A1 rating category.
The stable outlook reflects the fact that, with the company’s current financial policy, an upgrade is unlikely over the intermediate term despite BUD’s many credit strengths. The stable outlook also assumes that the company would voluntarily scale back on share repurchases in the event of a softening of performance, or a large debt financed acquisition. Longer term, upward rating movement would likely require a shift to a more conservative financial management metric as regards measures of retained and free cash flow to debt. A downgrade is unlikely given the strong and consistent performance record of the company and the relatively conservative approach of the management team. Any downward rating movement would most likely be event driven (such as a large debt financed acquisition) or follow an unexpected and dramatic downward shift in the profitability of the business.
The following ratings were confirmed
Senior Long-Term debt at A1
Rating of the company for short-term issuance at prime-1
The following rating was assigned:
Bank Credit Facility at A1
BUD, based in St. Louis, MO is the world’s leading beer company by volume. It also has packaging and entertainment operations.
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