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Rating Action:

Moody's downgrades Coca-Cola Hellenic to Baa1; outlook negative

Global Credit Research - 15 Jun 2012

Paris, June 15, 2012 -- Moody's Investors Service has today downgraded to Baa1 from A3 and to (P)Baa1 from (P)A3 the backed senior unsecured and medium-term note (MTN) ratings of Coca-Cola HBC Finance B.V and Coca-Cola HBC Finance plc, wholly-owned guaranteed subsidiaries of Coca-Cola Hellenic Bottling Company S.A. Coca-Cola Hellenic's commercial paper programme rating is unchanged at Prime-2. The outlook on the ratings remains negative.

RATINGS RATIONALE

"Today's rating action is prompted by the weakened credit profile of Coca-Cola Hellenic and our expectations that the current macroeconomic and consumer outlook across Europe will remain depressed in the coming quarters," says Yasmina Serghini-Douvin, a Moody's Vice President -- Senior Analyst and lead analyst for Coca-Cola Hellenic. Declining sales across many of the company's European markets have translated into weaker profitability and credit metrics which fell below Moody's expectations for the preceding rating category and positioned the company more weakly versus its peers: in the 12 months to 31 March 2012, Moody's estimates that Coca-Cola Hellenic's adjusted EBITA margin was approximately 7.3% (it was 10.6% in 2010), its debt/EBITDA ratio was 3.2x and its retained cash flow (RCF)/net debt ratio was 27.6%.

Moreover, Moody's is concerned about the potential repercussions from the ongoing turmoil in Greece, where Coca-Cola Hellenic is domiciled, specifically the increased probability of a scenario where Greece could exit the euro and the impact it could have on the company's credit quality. Overall, the company has a higher exposure to Southern Europe than other rated beverage companies, which makes it more vulnerable to these weakened economies and is likely to impede margin progression. This is mitigated by the fact that, in 2011, Greece represented only a small proportion of Coca-Cola Hellenic's net sales -- approximately 8% -- after depressed private consumption took its toll on the company's volumes in the country (down 22% since 2009).

More positively, Coca-Cola Hellenic has proved that it can continue to generate a solid free cash flow despite its sales being pressured across several of its European markets. Moody's considers that the company's commitment to its three-year (to 2014) free cash flow target of EUR1.45 billion and to building a cash cushion in 2012 are appropriate measures to preserve its financial flexibility in the current volatile capital markets environment, and are supportive of the company's rating.

The Baa1 rating is further supported by (i) the company's strategic importance to The Coca Cola Company ("TCCC"), one of its two principal shareholders; (ii) its solid portfolio of soft drinks and market positions; and (iii) the absence of any near-term debt repayments, with the company's next significant bond (USD500 million) coming due in September 2013. Moody's expects Coca-Cola Hellenic to execute the refinancing of its debt instruments coming due in the next 18 months well ahead of maturity.

The business arrangements between Coca-Cola Hellenic and TCCC do not include a guarantee of the former's financial obligations. However, Moody's believes that the close and long-standing relationship between the two entities is such that, if need be, TCCC will provide necessary support to maintain Coca-Cola Hellenic's adequate liquidity profile.

The negative outlook reflects Moody's concerns that the ongoing political and economic challenges in Europe create an unfavourable trading environment for Coca-Cola Hellenic. It also captures the risk that a further deterioration of the situation in Greece could disrupt the company's operations there. This will likely impede the improvement in Coca-Cola Hellenic's operating margins and credit metrics.

WHAT COULD CHANGE THE RATING UP/DOWN

A rating upgrade is unlikely in the near term considering the uncertain political and macroeconomic situation in Europe. However, the outlook could change to stable if Coca-Cola Hellenic demonstrates a resilience in operating performance going forward and there is evidence that the company's performance and finances remain largely unaffected by it being domiciled in Greece. An upgrade would, in addition to the previous elements, require credit metrics to improve sustainably i.e. RCF to net debt in the high 20s and a debt/EBITDA ratio around 2.5x.

The rating could come under downward pressure if there is (i) a major adverse change to the operating environment in Greece, notably as a result of the government's programme to stabilise public finances or if Greece exits the euro, (ii) a downgrade of TCCC's long-term rating (currently Aa3, stable outlook) or a change in the existing relationship and/or agreements with TCCC, (iii) a deterioration in the company's overall liquidity profile including tighter access to debt capital markets or lower standard of liquidity management. Other factors which could weigh on the rating include the following: (i) failure to maintain a retained cash flow/net debt ratio at least in the mid-twenties in percentage terms and a debt/EBITDA ratio of around 3.0x, (ii) market share erosion in Coca-Cola Hellenic's key established markets or (iii) significant debt-financed acquisition(s).

The principal methodology used in rating Coca-Cola HBC Finance B.V and Coca-Cola HBC Finance plc was the Global Soft Beverage Industry Methodology published in December 2009. Please see the Credit Policy 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 relevant 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 relevant 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 relevant 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.

The ratings have been disclosed to the rated entities or their designated agent(s) and issued with no amendment resulting from that disclosure..

Information sources used to prepare each of the ratings are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entities, obligations or credits satisfactory for the purposes of issuing these ratings.

Moody's adopts all necessary measures so that the information it uses in assigning the ratings 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.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entities or their related third parties within the two years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

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

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's 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 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.

Yasmina Serghini-Douvin
Vice President - Senior Analyst
Corporate Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Eric de Bodard
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's downgrades Coca-Cola Hellenic to Baa1; outlook negative
No Related Data.

 

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