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Rating Action:

Moody's assigns Ba3 to $1.45B of Green Mountain Coffee debt

Global Credit Research - 20 Dec 2010

GMCR closes $905 million acquisition of Van Houtte

New York, December 20, 2010 -- Moody's Investors Service, Inc. ("Moody's") assigned definitive ratings for Green Mountain Coffee Roasters, Inc. ("GMCR") including a Ba3 Corporate Family Rating and B1 Probability of Default Rating, following the closing of the company's first-time rated debt on December 17, 2010. Moody's also assigned a Ba3 rating to the company's new $1.45 billion senior secured bank facility, the proceeds from which the company used to fund the simultaneous closing of its CAD$915 million (approximately USD$905) acquisition of Canada-based LJVH Holdings, Inc. ("Van Houtte"). The assigned definitive ratings replace the provisional ratings that were assigned on October 20, 2010. Finally, Moody's affirmed the company's SGL-3 Speculative Grade Liquidity Rating that also was assigned on October 20, 2010. The rating outlook is stable.

RATINGS RATIONALE

The Ba3 Corporate Family Rating reflects the expanding base and growing retail acceptance of GMCR's category-leading Keurig single-serve coffee brewers, which drive sales of its high-margin "K-Cup" coffee cartridges. The rating also reflects the company's aggressive growth strategy that has involved the rapid consolidation of K-Cup licensees over the past two years in four separate transactions valued at $1.4 billion. In addition, GMCR's rapid organic growth (over 50%) has intensified demands on its highly concentrated supply chain and distribution network. Although gross cash flows have grown rapidly, the incremental working capital and plant expansion required to keep up with rapid brewer and K-Cup demand has consumed substantially all of GMCR's operating cash flow generation. As a result, negative free cash flow is likely to persist for the foreseeable future and could require additional financing in the intermediate-term.

Elevated leverage resulting from acquisitions is mitigated by the incremental high operating profit margins generated by the acquired companies (primarily K-cup licensees) and by the $637 million of equity raised to partially fund them. Moody's estimates proforma debt to EBITDA at 4.1 times that through earnings growth should decline to below 3.25 times by the end of fiscal 2011.

The recent restatement of GMCR's financial statements to correct errors for fiscal years 2006-2010 had no affect on the ratings. The SEC inquiry into the company's revenue recognition practices has not yet been concluded; however, we do not expect its resolution to affect the company's ratings.

Ratings assigned:

Green Mountain Coffee Roasters, Inc.

Corporate Family Rating at Ba3;

Probability of Default Rating at B1;

$450 million senior secured revolving credit facility due 2015 at Ba3 (LGD-3, 30%);

$200 million alternative currency senior secured revolving credit facility due 2015 at Ba3 (LGD-3, 30%);

$250 million senior secured bank Term Loan A due 2015 at Ba3 (LGD-3, 30%);

$550 million senior secured bank Term Loan B due 2016 at Ba3 (LGD-3, 30%).

Ratings affirmed:

Green Mountain Coffee Roasters, Inc.

Speculative Grade Liquidity Rating at SGL-3.

The senior credit facilities are secured by a first priority lien on substantially all the assets of GMCR and domestic subsidiaries and by 65% of the capital stock of GMCR's non-U.S. subsidiaries (principally, the Canadian operations). The domestic subsidiaries, which are guarantors under the agreement, generate approximately 75 % of total revenues and EBITDA on a proforma basis.

Key covenants include minimum interest coverage, maximum leverage ratio and limitations on capital expenditures. The most restrictive covenant limits proforma debt to EBITDA to 4.25 times currently, and steps down over the next 9 months to 3.50 times at the end of fiscal 2011.

The SGL-3 rating is based on our expectation that GMCR will have adequate liquidity over the next twelve months, but will be reliant on revolver borrowings to fund operations. At closing on December 17, 2010 the company had $290 million of availability under its revolving credit facilities. Working capital needs typically peak near the end of the fourth quarter as the company builds brewer inventory for the holiday season. Given the company's high demands for growth capital, Moody's does not anticipate positive free cash flow generation in the near-term.

The bank debt instrument ratings reflect both the overall probability of default (as reflected in the B1 PDR) and a below-average mean family loss given default assessment of 30% (or an above-average mean family recovery estimate of 65%), in line with Moody's LGD Methodology and typical treatment for an all-first-lien bank senior secured debt capital structure.

The principal methodologies used in this rating were Global Packaged Goods Industry published in July 2009, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.

Corporate Profile

Green Mountain Coffee Roasters, Inc. based in Waterbury, Vermont, is a manufacturer of specialty coffee and other hot beverages, and single serve coffee brewing systems. The company's operations are managed through two business units. The Specialty Coffee business unit produces coffee, tea and hot cocoa from its family of brands, including Tully's Coffee®, Green Mountain Coffee®, Newman's Own® Organics coffee, Timothy's World Coffee® and Diedrich®, Coffee People® and Gloria Jeans®, a licensed trademark. The Keurig business unit manufactures gourmet single-cup brewing systems. GMCR produces the K-Cup® portion packs for Keurig® Single-Cup Brewers. Fiscal 2010 sales for the twelve-month period ending September 25, 2010 totaled $1.4 billion.

Founded in 1919, Montreal-based Van Houtte Group Inc. (subsidiary of LJVH Holdings Inc.) is a leading roaster, marketer and distributor of gourmet coffee in North America. The Company roasts and markets its gourmet coffees across Canada and the U.S. through distribution channels that include coffee services, retail stores, café-bistros and online shopping.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Brian Weddington, CFA
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
John Diaz
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
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JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns Ba3 to $1.45B of Green Mountain Coffee debt
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