New York, April 12, 2018 -- Moody's Investors Service (Moody's) today assigned a Ba1 rating
to Grupo Bimbo, S.A.B. de C.V.'s
(Bimbo) proposed $500 million subordinated perpetual notes (the
"hybrid"). Bimbo´s Baa2 issuer and senior unsecured
ratings remain unchanged. The outlook is stable.
Bimbo will use the proceeds of the issuance for general corporate purposes,
including to repay existing debt, to pay purchase price of recent
acquisitions and to partially fund capital expenditures.
RATINGS RATIONALE
"The Ba1 rating assigned to the hybrid instrument is two notches
below Bimbo's Baa2 senior unsecured rating, reflecting the
characteristics of the proposed notes. Accordingly, the hybrid
is a perpetual, deeply subordinated debt instrument that is treated
as a preferred equivalent under our rating methodology and allows Bimbo
to opt for coupon deferral on a cumulative basis" said Alonso Sanchez,
a Vice President at Moody's.
In Moody's view, the hybrid has equity-like features which
allow it to receive a basket "C" treatment (i.e. 50%
equity and 50% debt) for the purpose of adjusting financial statements.
Please refer to Moody's Cross-Sector Rating Methodology "Hybrid
Equity Credit" published in January 2017 for further details.
As the hybrid note's rating is positioned relative to Bimbo´s senior
unsecured ratings, a change in either (1) Moody's relative notching
practice or (2) the Baa2 senior unsecured rating of Bimbo could affect
the hybrid's rating.
"Bimbo's Baa2 senior unsecured rating is supported by its
position as the largest baked-goods company in the world,
with an ample distribution infrastructure in its key markets; sustained
free cash flow generation; and ample geographic diversification."
added Sanchez. On the other hand, the rating reflects Bimbo's
growth through acquisitions which increases its leverage and execution
risk. Nevertheless, execution risk is mitigated by Bimbo's
management team good track record integrating acquisitions while capturing
synergies. Also considered in the rating is the competitive nature
of the markets where Bimbo operates.
The proceeds from the new notes will be used to refinance existing debt,
to pay the purchase price of recent acquisitions and to partly finance
capital expenditures. While 50% of the hybrid is treated
as debt, the transaction will add only $80 million in debt
to Bimbo's balance sheet, as the company will refinance existing
debt at the holding and subsidiary levels. Pro-forma for
the issuance, Bimbo's adj. debt/EBITDA would be 3.72x
in 2017; essentially at the same level it closed 2017 (adj.
debt/EBITDA of 3.68x in 2017). Going forward, Bimbo's
leverage will improve from a combination of higher EBITDA and reduction
in debt. We estimate Bimbo's adj. debt/EBITDA will
decline below 3.5x by year-end 2018 and below 3.0x
by year-end 2019.
Bimbo has a strong liquidity position. As of December 31,
2017 its reported cash on hand of MXN7,216 million can cover 2.6x
its short term debt. Bimbo's liquidity is additionally supported
by its $2.1 billion committed credit facilities maturing
in 2021-2022, which will be 100% available following
the issuance of the new notes (currently is 95% available),
and its strong free cash flow generation. Pro-forma for
the issuance of the notes and debt refinancing, Bimbo will continue
to have a comfortable long-term debt maturity profile including
$800 million due 2020, $800 million due 2022,
$800 million due 2024, and $2,062 million due
beyond 2026.
The stable outlook reflects our expectation that Bimbo will be able to
reduce its leverage and maintain strong credit metrics, in line
with its rating category, and that it will continue to post solid
profitability.
The ratings could be upgraded if credit metrics were to improve such that
Moody's adjusted debt/EBITDA falls close to or below 2 times and
Retained Cash Flow/Net Debt solidly exceed 30% on a sustainable
basis. An upgrade would also require several quarters of favorable
performance and the maintenance of a strong liquidity profile.
A downgrade could be triggered if operating performance weakens.
Also a deterioration in credit metrics such that Moody's adjusted
Retained Cash Flow/Net Debt declines below 15%, adjusted
debt/EBITDA remains above 3.5 times on a sustained basis or if
the company posts negative free cash flow. A deterioration in liquidity
or in its credit profile or profitability, for example from an acquisition
that is not accretive to the company, could also lead to a downgrade.
The principal methodology used in this rating was Global Packaged Goods
published in January 2017. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
Based in Mexico City, Mexico, Grupo Bimbo, S.A.B.
de C.V. is the world's largest baked-goods
producer. In Mexico, it is the largest producer of packaged
bread and sweet baked-goods, and the second largest player
in the salty snack and confectionary categories. The company also
operates in the U.S., where it is the largest baked-goods
company, in Canada where it holds a leading position in buns and
rolls, and has a leading presence in Latin America, the UK,
Spain, and Portugal. Bimbo reported revenues of around $14.1
billion in 2017.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Alonso Sanchez
Vice President - Senior Analyst
Corporate Finance Group
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
JOURNALISTS: 1 888 779 5833
Client Service: 1 212 553 1653
Marianna Waltz, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 800 891 2518
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
