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Rating Action:

Moody's downgrades ABI ratings to A3/Prime-2; assigns definitive A3 to new bonds; outlook stable

25 May 2016

New York, May 25, 2016 -- Moody's Investors Service ("Moody's") today downgraded the senior unsecured long term ratings of Anheuser-Busch InBev SA/NV and its guaranteed subsidiaries to A3 from A2, and its short term rating to Prime-2 from Prime-1. This concludes Moody's ratings review that began on October 13, 2015 when ABI reached an agreement in principle to acquire SABMiller Plc (A3/Prime-2, on review direction uncertain) for approximately $106 billion in cash and shares. Moody's also assigned A3 ratings to the $46 billion in US bonds and $1.47 billion Formosa bonds that were issued by ABI and its guaranteed subsidiaries early in 2016 to pre-fund the SABMiller deal. These bonds had originally been assigned (P)A3 ratings. The conclusion of the review follows the May 24th announcement of EU clearance for the proposed combination with SABMiller. The rating outlook is stable.

"The one notch downgrade to A3 reflects the significant debt and resulting high leverage that ABI will incur to fund the SABMiller deal" said Linda Montag, Moody's Senior Vice President. "We expect ABI's debt to EBITDA leverage (including Moody's standard adjustments) to peak at over 5 times at closing of the SABMiller transaction. This should improve to closer to 4 times over a one-to-two year period, which is still high for an investment grade rating," she added. Moody's does not expect leverage to reach 3 times until sometime in 2020. The slow reduction in financial leverage is partly a factor of a relatively high dividend payout. However, the risk of this level of financial leverage is partly offset by the combined company's vast and diverse franchise. The combined business will hold a portfolio of beer brands that have leading market shares, including number one market positions in most of the world's largest and most profitable beer markets. While there are integration risks and some uncertainty about the retention of certain owned businesses and business partners, ABI has a long track record of managing acquisitions, which will help to mitigate these risks. Importantly, ABI's senior management has articulated publicly that it will continue to target a net debt to EBITDA leverage (by the company's definition) of 2 times over the longer term. These positives help to support a relatively high investment grade rating despite leverage metrics that will be in speculative grade territory for several years.

Moody's notes that the EU clearance is a major milestone in the regulatory approval process, and brings to 14 the number of jurisdictions that have approved the transaction. However, important regulatory approvals including the U.S., China, and South Africa have yet to be obtained. If the transaction does not get all necessary approvals, or fails to be completed for any other reason, there is the possibility of rating reversal on remaining outstanding debt.

Anheuser-Busch InBev SA/NV

LT Issuer Rating, downgraded to A3 from A2

BACKED Senior Unsecured MTN, downgraded to (P)A3 from (P)A2

BACKED Other Short Term, downgraded to (P)P-2 from (P)P-1

BACKED Senior Unsecured, downgraded to A3 from A2

Anheuser-Busch InBev Finance, Inc

BACKED Senior Unsecured, downgraded to A3 from A2

BACKED Senior Unsecured, assigned at definitive A3

Anheuser-Busch InBev Worldwide Inc

BACKED Senior Unsecured, downgraded to A3 from A2

BACKED Commercial Paper, downgraded to Prime-2 from Prime-1

Anheuser-Busch Companies, LLC

LT Issuer Rating, downgraded to A3 from A2

BACKED Senior Unsecured, downgraded to A3 from A2

Senior Unsecured MTN, downgraded to (P)A3 from (P)A2

Senior Unsec. Shelf, downgraded to (P)A3 from (P)A2

Industrial Revenue Bonds (supported by Anheuser-Busch Companies, LLC), downgraded to A3 from A2

Outlook

Stable

RATINGS RATIONALE

ABI's ratings reflect the company's position as the world's largest brewer, its wide portfolio of brands at various price points, and leading positions in some of the largest and most profitable beer markets in the world. The ratings are further supported by the company's strong margins, excellent liquidity and large, stable cash flows through a range of economic cycles. At the same time, in its ratings Moody's factors in the company's exposure to somewhat volatile economies, including parts of Latin America and Asia, in addition to declining beer consumption in developed markets such as North America and Europe.

Combining the world's largest brewing company, ABI, with the second largest brewer SABMiller, will create a beer behemoth with revenue more than double that of the next largest competitor, Heineken N.V. (Baa1 stable). The company's enhanced scale, as well as its improved geographic and product diversification is an important consideration that helps to offset the initially weaker leverage metrics. The combined company will have approximately $60 billion in total revenues and around $24 billion in EBITDA.

Moody's believes that based on ABI's track record, the company will capture enough synergies to improve SAB's EBITA margins (in the low 30% range) to a level closer to its own EBITA margins (in the mid 30% range).

The stable outlook reflects Moody's expectation that the deal will close as currently envisioned and that the management team will refrain from additional large acquisitions or shareholder returns until leverage is restored to close its stated target range.

A ratings upgrade is unlikely in the next few years given the high pro-forma starting leverage and slow path to deleveraging. To be upgraded the company will need to demonstrate successful integration of SABMiller, including timely achievement of expected synergies. It will also need to generate solid operating performance from legacy and acquired businesses, and a demonstrate a commitment to a conservative financial policy. Quantitatively an upgrade would require the company to maintain or expand its margins, restore retained cash flow to net debt to the mid-teens, and debt to EBITDA approaching 3 times (calculated using Moody's accounting adjustments).

The ratings could be downgraded absent steady progress toward reducing post acquisition debt-to-EBITDA leverage to below four times, or if ABI's EBITA margins are sustained below 25%. Further large debt-financed acquisitions, aggressive debt-financed shareholder returns, or sustained operating difficulties in key markets could also lead to a downgrade.

Anheuser-Busch InBev SA/NV (ABI), incorporated in Leuven, Belgium, is the world's largest brewing company. ABI has operations in over 25 countries and sells its products in over 130 countries, with market leading positions in North America, Brazil, Mexico and Argentina. In Brazil, it operates through its subsidiary Companhia de Bebidas das Americas ("AmBev S.A.") (rated Baa3, negative).

SABMiller plc ("SABMiller") is the world's second-largest brewer by volume, behind Anheuser-Busch InBev, producing and distributing a large variety of beer brands in approximately 75 countries.

The principal methodology used in these ratings was Global Alcoholic Beverage Industry published in October 2013. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

Linda Montag
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Peter H. Abdill, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's downgrades ABI ratings to A3/Prime-2; assigns definitive A3 to new bonds; outlook stable
No Related Data.
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