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30 Sep 2010
Approximately USD233 million in rated debt instruments affected
Mexico, September 30, 2010 -- Moody's downgraded Cerveceria Nacional Dominicana, C.
por A.'s (CND) corporate family and senior unsecured ratings
to B1 from Ba3. The downgrade reflects the company's weaker
than anticipated operating performance and credit metrics over the past
several years compared to Moody's expectations in 2007 when Moody's
first assigned the ratings. An increased domestic tax burden,
growing competition and softer demand conditions during the economic slowdown
in 2009 drove the difference in performance. The rating outlook
..Issuer: Cerveceria Nacional Dominicana, C.
....Corporate Family Rating, Downgraded
to B1 from Ba3
....Senior Unsecured Regular Bond/Debenture,
Downgraded to B1 from Ba3
..Issuer: Cerveceria Nacional Dominicana, C.
....Outlook, Changed To Stable From
CND's B1 ratings continue to reflect the company's position as the leading
brewer in the Dominican Republic, its solid profitability and leverage
for the B1 rating category, and the defensive nature of its beer
business. These credit strengths are offset by the company's
modest operating scale compared to its international peers, its
limited geographic and brand diversification as it generates most of its
earnings domestically, and the competitive challenges in the local
beer market. The ratings also consider the Dominican Republic's
country risk (Ba2 foreign currency country ceiling) and the dollar exposure
in the company's cost, and to a lesser extent, debt
structure relative to a revenue base that is largely in local currency.
Over the past few years, CND's revenues remained flat while
earnings were under pressure following various changes in the tax regime
for beer in the Dominican Republic, which led to higher end prices
for consumers and pressured sales volumes. At the same time,
CND's pricing power was affected by last year's economic slowdown
and increasing competition from the local operation of AmBev (A3,
stable), Latin America's largest brewer, that was established
in 2005. Since its market entry, AmBev has gradually increased
the volume share of its local Brahma brands to around 13% through
aggressive pricing, although it has maintained a lower and more
stable share in terms of revenues.
For the 12 months ended June 30, 2010 (LTM 2Q10), CND reported
DOP17.2 billion (USD475 million) in revenues and DOP5.06
billion (USD139 million) in EBITDA before around USD11 million in non-recurring
restructuring costs. The EBITDA margin before charges was 29.3%
(vs. 27.0% as reported), in line with global
brewing peers, and was up 0.6 percentage points since 2008
as volumes rebounded with economic growth. However, margins
were down around three points since 2007, a trend which contrasted
with Moody's original expectation of modest upcoming margin expansion
when the ratings were first assigned.
Despite these longer term performance pressures, CND has managed
to maintain positive free cash flow over the past two years by scaling
back capital expenditures and dividends. Nonetheless, margin
pressures have prevented credit metrics from developing positive momentum.
Leverage is in line with that of several global investment grade brewers
and has been fairly stable over the past few years, but it remains
relatively high considering CND's limited diversification and country
risk exposure. Interest coverage also remains weak. In 2Q10,
adjusted LTM Debt/EBITDA was 3.3 times (vs. 3.1 times
in 2008) while EBIT/Interest came in at 1.7 times (1.5 times).
LTM free cash flow after dividends was DOP1.68 billion (USD39 million),
or 11% of total adjusted debt.
Going forward, Moody's expects CND's operating performance
to gradually strengthen. Margins should benefit from several efficiency
measures the company is implementing across its organization (we expect
around USD20 million in annual savings) and from changes in its product
portfolio and pricing strategies to address competition from AmBev's
aggressive price points. Overall, however, the agency
maintains a cautious view in terms of upside potential of operating performance
and credit metrics beyond these initiatives in light of likely continued
competitive pressures from AmBev.
CND's liquidity is currently adequate, based on positive free
cash flow and cash reserves that should fully cover near-term debt
maturities. As of June 30, 2010, CND had DOP2.7
billion (USD73 million) in cash, which covered DOP2.0 billion
(USD56 million) in short term debt 1.3 times. Short term
debt was mainly comprised of a USD31 million bridge facility due in March
2011, which the company used to finance its recent Caribbean acquisition,
and the remaining outstanding amounts under a syndicated DOP facility
debt with final maturity in January 2012.
Moody's expects CND to refinance its USD31 million bridge facility over
the coming months by issuing local notes in the Dominican market.
It also expects the company to start addressing the maturity of its peso-linked
16% global notes in March 2012 (around USD147 million) over the
next several quarters. CND does not maintain committed revolving
credit lines for backup purposes but instead, relies on uncommitted
facilities with several local banks, with a total current availability
of around DOP2.1 billion (USD56 million). CND has cushion
under financial covenants of its syndicated credit facility (maximum Debt/EBITDA
of 5.0 times and minimum EBITDA/Interest of 1.25 times),
but it is close to its minimum 2.5 times EBITDA/Interest incurrence
test under its global notes' indentures, which restricts incremental
debt to amounts permitted under carve-out provisions.
The stable rating outlook reflects Moody's expectation of a continued
recovery of CND's operating performance over the near to medium-term,
and the company's ability to successfully address competitive pressures.
It also incorporates the expectation that the company will successfully
refinance its near-term debt maturities over the coming months
and maintain a prudent capital structure going forward.
The last rating action for CND was on February 5, 2009, when
Moody's changed the outlook for the company's ratings to negative
The principal methodology used in rating Cerveceria Nacional Dominicana,
C. por A. was the Global Alcoholic Beverage Rating Methodology
rating methodology published in August 2009, which can be found
at www.moodys.com in the in the Rating Methodologies sub-directory
under the Research & Ratings tab. Other methodologies and factors
that may have been considered in the process of rating this issuer can
also be found on Moody's website.
Headquartered in Santo Domingo, Dominican Republic, Cervecería
Nacional Dominicana, C. por A. (CND) is the Dominican
Republic's largest brewer and a leader in the country's non-alcoholic
malts market. The company also operates a beer export business,
which serves the U.S. East Coast, the Caribbean and
various European markets, and recently acquired controlling interests
in several beverage businesses on the Caribbean islands of Saint Vincent,
Antigua and Dominica. CND is the main operating subsidiary of E.
Leon Jimenes, a family-controlled holding company.
For the 12 months ended June 30, 2010, the company generated
net revenues of DOP17.2 billion (USD475 million).
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, confidential
and proprietary Moody's Investors Service's 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.
Sebastian Hofmeister, CFA
Vice President - Senior Analyst
Corporate Finance Group
Moody's de Mexico S.A. de C.V
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's de Mexico S.A. de C.V
Moody's downgrades CND's ratings to B1; outlook stable
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
No Related Data.
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