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Rating Action:

Moody's assigns Baa3 rating to Danone's proposed hybrid notes

07 Sep 2021

Milan, September 07, 2021 -- Moody's Investors Service ("Moody's") has today assigned a Baa3 rating to the proposed issuance of undated deeply subordinated fixed rate resettable notes (the "Hybrid") to be issued by Danone (Baa1 stable). The outlook is stable.

Danone plans to use the proceeds from these notes to repay an equal amount of the outstanding €1,250 million hybrid notes issued in 2017.

RATINGS RATIONALE

The Baa3 rating assigned to the hybrid is two notches below Danone's senior unsecured rating of Baa1, and is in line with the rating on the existing hybrid notes issued by the company.

The hybrid is undated, deeply subordinated and provides Danone with the option to defer coupons on a cumulative basis. The coupon steps up by 25 basis points (bps) at least 10 years after the issuance date and by a further 75 bps 25 years after the issuance.

In Moody's view, the hybrid has equity-like features which allow it to receive basket 'C' treatment (i.e. 50% equity and 50% debt) for financial leverage purposes. Please refer to Moody's Cross-Sector Rating Methodology "Hybrid Equity Credit", published in September 2018, for further details.

Danone's Baa1 senior unsecured rating reflects its solid business profile, underpinned by its leading market positions in some product categories and well-recognised brands, its global presence and well-balanced geographical diversification. The ratings also reflect Moody's expectation that Danone's credit ratios will gradually improve in 2022 from the current weak levels, as the company makes progress on its restructuring plan and its operating performance recovers from the disruption caused by the pandemic.

Moody's expects Danone's credit ratios to remain weak for the rating in 2021, because of the substantial one-off costs associated with the transformation plan and the still difficult trading environment, with its Moody's adjusted gross leverage peaking at above 5.0x and its retained cash flow (RCF)/net debt ratio remaining at around 14%. However, Moody's projects leverage will return towards 4.0x and retained cash flow (RCF)/net debt will improve towards 16% in 2022, within the thresholds required for the Baa1 rating. This improvement remains subject to some execution risk on the restructuring plan.

The rating continues to be supported by Danone's financial policy, its commitment to the Baa1 rating and its prudent liquidity management. However, a permanent shift towards a more shareholder friendly financial policy, resulting in a prolonged weakness of credit metrics, would add negative pressure to the rating.

RATIONALE FOR STABLE OUTLOOK

The stable outlook reflects Danone's solid business risk profile and Moody's expectation that its financial metrics will recover in the next 18 months, after a temporary deterioration in 2020 and 2021 because of the impact of the coronavirus outbreak and costs associated with the transformation plan.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING

As the hybrid debt rating is positioned relative to another rating of Danone, either: (1) a change in Danone's senior unsecured rating; or (2) a re-evaluation of its relative notching could affect the hybrid debt rating.

Positive rating pressure could arise if Danone maintains its prudent financial policy, its Moody's-adjusted (gross) debt/EBITDA declines to below 3.0x and its retained cash flow (RCF)/net debt rises above 18%.

Negative rating pressure would build if Danone's Moody's-adjusted gross debt/EBITDA remains above 4.0x on a sustained basis (corresponding to a net leverage of around 3.5x) and its RCF/net debt deteriorates to below 13%.

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was Consumer Packaged Goods Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1202237. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Lorenzo Re
Vice President - Senior Analyst
Corporate Finance Group
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Ivan Palacios
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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​
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