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Rating Action:

Moody's upgrades Pernod Ricard to Baa3; stable outlook (France)

08 Sep 2011

Approximately EUR4.5 Billion of rated debt affected

Paris, September 08, 2011 -- Moody's Investors Service has today upgraded to Baa3 from Ba1 the long-term issuer and senior unsecured ratings of Pernod Ricard S.A ("Pernod" or "the company"), and the backed senior unsecured debt rating of the debt instruments previously issued by Allied Domecq Financial Services Limited and guaranteed by Pernod. Moody's has also raised Pernod's short-term rating to Prime-3 from Not Prime and assigned a Prime-3 short-term rating to the Billet de Trésorerie Programme of up to EUR1.5 billion, implemented by Pernod Ricard Finance S.A. This programme is guaranteed unconditionally by Pernod. Concurrently, Moody's has also withdrawn Pernod's corporate family rating and probability of default rating. The outlook is stable.

RATINGS RATIONALE

"The upgrade to investment grade recognises the improvement in Pernod's operational performance in the past year, which has contributed to better credit metrics for the financial year ended 30 June 2011 (2010/11)", says Yasmina Serghini-Douvin, a Moody's Vice-President -- Senior Analyst and lead analyst for Pernod. In a still subdued environment for alcoholic beverage consumption in Western Europe, Pernod's sales were up 7% and profit from recurring operations by 8% (on an organic basis). This was driven by positive price and mix effects, robust growth in Asia/Rest of the world and, to some degree, a recovery in the company's more mature markets. Pernod has not reported signs of a slowdown in volumes in the key US spirits market, in which consumption of premium and super-premium spirits categories and in the important on premise channel has accelerated in recent quarters. Whilst there are macroeconomic risks, especially for the US and some countries in Western Europe, Moody's believes that, overall, Pernod's performance is resilient and that further growth in profits is achievable even in a scenario of weaker economic growth.

Moreover, the company has reduced its reported net debt by approximately EUR1.5 billion to EUR9.0 billion, of which EUR0.9 billion was attributable to favourable currency effects. As a result, its reported net debt/EBITDA ratio stood at 4.4x (as defined by Pernod), compared with 4.9x a year ago. Based on Pernod's preliminary results report, Moody's estimates that the company's adjusted (gross) debt/ EBITDA ratio was somewhat below 5.0x as of June 2011 and that it will progress towards 4.5x this year. Moody's cautions that Pernod's financial profile positions it weakly in the Baa3 rating category and that continued efforts to deleverage are expected, consistent with, at least, the company's self-imposed target of achieving a decrease in its net debt/EBITDA ratio to approximately 4.0x by the end of June 2012.

The Baa3 rating is supported by Pernod's significant position as the world's second-largest spirits and wines producer, its presence in key spirits markets in the Americas, Europe and Asia and its solid profitability and recurring cash flows from operating activities. The rating is currently constrained by the company's financial structure, which Moody's considers to be weak for the rating category. In upgrading Pernod's rating to Baa3, Moody's anticipates that the company will further improve its credit metrics this year towards our target for the rating category as indicated below, and that it will maintain a satisfactory liquidity profile.

The stable outlook incorporates Moody's expectation that Pernod will pursue its efforts to reduce its debt and that it will gradually improve its financial profile to consolidate its position within the Baa3 rating category. This include (i) an active refinancing of its upcoming debt maturities, principally EUR5.2 billion in 2013/14; (ii) a decrease in its adjusted leverage metrics to below 4.5x at least; and (iii) an improvement in its retained cash flow (RCF)/net debt above 10%. Given the uncertain macroeconomic outlook, Moody's cautions that the stable outlook also factors in limited room for operational weakness.

Upward pressure on the rating is unlikely in the near term given the expected further improvement in Pernod's credit metrics. Longer term, Moody's could consider a positive rating action if Pernod continues to de-risk its financial structure such that (i) its adjusted leverage ratio decreases comfortably below 4x; and (ii) it achieves and maintains an RCF/net debt ratio in the mid-teens in percentage terms.

Negative rating pressure could arise if (i) Pernod changes its financial policy, including its deleveraging target and dividend payments, and more generally its policy towards shareholders' returns; (ii) the company makes no progress within the next six to nine months to address the refinancing cliff in 2013; and (iii) there is an increase in the company's corporate activity. Quantitatively, negative pressure would build if there were evidence that Pernod's debt/EBITDA ratio would not progress below 4.5x and its RCF/net debt ratio not improve above 10% within the next 12 months.

PRINCIPAL METHODOLOGY

The principal methodology used in rating Pernod Ricard S.A. was the Global Alcoholic Beverage Rating Methodology published in August 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Incorporated in Paris, France, Pernod Ricard is one of the world's largest alcoholic beverage companies, generating sales of EUR7.6 billion for 2010/11.

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.

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

Paris
Eric de Bodard
MD - Corporate Finance
Corporate Finance Group
Moody's France SAS
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SUBSCRIBERS: 44 20 7772 5454

Moody's France SAS
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Moody's upgrades Pernod Ricard to Baa3; stable outlook (France)
No Related Data.
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