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29 Sep 2008
Moody's assigns Baa2 ratings to InBev; downgrades Anheuser Busch to Baa2/Prime-2; stable outlook
First-time ratings for InBev
Paris, September 29, 2008 -- Moody's Investors Service today assigned a Baa2 long-term
issuer rating to InBev nv/sa ("InBev" or "the Company")
and a Baa2 long-term rating to InBev's USD45 billion senior
facilities, which are unsecured obligations guaranteed by InBev.
The outlook on the ratings is stable.
InBev's ratings and outlook factor in the combination with Anheuser-Busch
Companies, Inc. ("BUD"), which was announced
on 14 July 2008. The proposed transaction has been approved by
the Boards of InBev and BUD. It is still subject to approval by
the shareholders of BUD - the deal was approved today by InBev's
shareholders - and regulatory clearance, and is expected
to close by the end of 2008.
Moody's has concurrently downgraded BUD's long-term
rating to Baa2 from A2 and the short-term ratings of its Commercial
Paper programmes to Prime-2 from Prime-1. The outlook
on the ratings is stable. This concludes the review for possible
downgrade initiated on 12 June 2008 following the unsolicited bid by InBev.
The downgrade of BUD's ratings reflects the fact that InBev,
which will guarantee BUD's debt, will have a higher risk profile
than BUD on a standalone basis given InBev's higher post acquisition
leverage, more aggressive management approach, greater emerging
markets exposure and execution/integration risks. BUD will be fully
integrated into the group after the transaction completes and will no
longer be monitored on a separate basis. Moody's is satisfied
that the notes issued by BUD will benefit from adequate guarantee arrangements
by InBev so that they will rank pari passu with all other senior obligations
"InBev's Baa2 ratings reflect Moody's view that the
acquisition of BUD will create the world's largest brewing company
by some distance, with a global footprint. The strong business
profile of the combined entity will be supported by a comprehensive portfolio
of beer brands, improved market positioning in major beer profit
pools and enhanced geographic diversity", says Yasmina Serghini,
a Moody's analyst.
In that respect, Moody's notes that the combined entity will
have a more balanced exposure to mature and developing markets although
Brazil, where the company has a dominant position through its fully
consolidated subsidiary Companhia de Bebidas das Americas ("AmBev",
rated Baa1/positive local currency issuer rating; Baa3/stable foreign
currency issuer rating), will remain one of the principal contributors
to growth and profits.
At the same time, the ratings factor in the weakening in InBev's
financial profile as the company will take a significant leverage after
the transaction. Moody's expects credit metrics to deteriorate
materially from their level on a standalone basis. InBev has put
in place a financing package, committed by banks, which includes
USD45 billion debt facilities, of which USD7.0 billion bridge
to disposals, plus a USD9.8 billion equity bridge financing,
to be refinanced by an equity increase in the six months following closing
of the deal.
Although InBev will have limited flexibility after the acquisition,
Moody's assumes that it will carry out a prudent financial policy
after the transaction, by applying the expected proceeds from assets
disposals and free cash flows to debt reduction. Furthermore,
InBev has committed to retain a strong credit profile after the combination,
in line with an investment-grade rating.
Moody's considers that there are certain execution risks attached
to the transaction in connection with the disposals of non-strategic
assets, the equity increase and the implementation of cost reduction
initiatives. InBev has identified at least USD1.5 billion
of annual synergies to be delivered by 2011, primarily in the form
of cost reductions and sharing best practices. However, Moody's
recognises that the company has historically pursued an active external
growth strategy and as such has a strong track record of corporate transactions.
Moreover, InBev has demonstrated in recent years its ability to
achieve targeted cost savings, both following its merger with AmBev
and in other markets.
The stable outlook reflects Moody's view that the acquisition of
BUD will give InBev a unique position within the industry and further
enhance its portfolio of brands. The rating agency expects that,
although credit metrics will be stretched immediately after the transaction,
they will be rebuilt within the 12 to 18 months following the transaction,
on the back of robust free cash flow generation, positioning the
company comfortably in its rating category. To maintain the current
rating and outlook, Moody's would expect the company to achieve
a ratio of RCF to Net Debt in the high teens, Debt to EBITDA at
around 3.0x and EBIT to Interest Expense above 3.5x in FY
Upward pressures on the rating could occur if the company records and
maintains a ratio of RCF to Net Debt in the mid-twenties,
Debt to EBITDA below 2.5x and EBIT to Interest Expense above 5.0x.
Nevertheless, Moody's cautions that negative pressure could
build on the rating if InBev fails to complete the equity financing or
assets disposals, or achieve the expected free cash-flow
generation and credit metrics due to lower than anticipated operating
performance or step up in shareholders' returns.
Moody's views InBev's liquidity profile as robust, underpinned
by (i) moderate cash balances; (ii) large and recurring cash flows
from operations with peak working capital needs typically coinciding with
the summer season; and (iii) access to committed bank facilities
comprising a EUR2.5 billion revolving credit line expiring in 2012
and a CAD680 million credit facility, which contain financial covenants.
Following the transaction, Moody's expects InBev to maintain
adequate liquidity to cover its upcoming debt repayments and other corporate
needs, and further notes that the acquisition financing includes
a five-year USD1.0 billion revolving credit facility.
InBev nv/sa, incorporated in Leuven, Belgium, is a leading
brewing company with annual sales of EUR14.4 billion at year end
2007 and pro forma sales of around EUR26.6 billion including BUD.
Based in St. Louis, BUD is the leading American brewer with
2007 net sales of USD16.7 billion.
Corporate Finance Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Senior Vice President
Corporate Finance Group
Moody's Investors Service
No Related Data.
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