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Rating Action:

Moody's upgrades Starbucks' unsecured ratings to Baa2; outlook stable

Global Credit Research - 29 Apr 2013

Approximately $550 Million of Rated Debt Securities Affected

New York, April 29, 2013 -- Moody's Investors Service today upgraded Starbucks Corporation's ("Starbucks") senior unsecured ratings to Baa2 from Baa3. In addition, Moody's affirmed the company's Prime-3 short term commercial paper rating. The outlook is stable.

The ratings upgrade reflects Starbucks continued strong earnings, margins, and cash flows that have resulted in credit metrics and liquidity that warrant a higher rating. The Baa2 rating also reflects Moody's view that credit metrics and liquidity will remain appropriate for the revised ratings despite the potential for higher debt levels that may be required to partially fund a liability associated with its pending binding arbitration with Kraft. Affirmation of the Prime-3 rating reflects Moody's view that Starbucks liquidity will remain adequate, excluding any potential new debt financing requirement related to the Kraft binding arbitration.

Ratings upgraded are:

- $550 million senior unsecured 6.25% notes, due August 2017 to Baa2 from Baa3

Ratings affirmed are:

- Short term commercial paper rating affirmed at Prime-3

RATINGS RATIONALE

The Baa2 senior unsecured rating reflects Starbucks global brand strength, dominant position in the US specialty coffee segment, global diversification, meaningful scale, solid credit metrics, and adequate liquidity. The ratings also incorporate the potential for higher debt levels to partially fund a possible liability associated with the Kraft binding arbitration. Fundamentally, the ratings also reflect the negative impact that soft consumer spending and heightened competition could have on consumer visits, operating performance, and debt protection measures if consumer spending remains soft for a prolonged period. The ratings also consider the limited scope and concept concentration which is focused towards a single product -- coffee.

The stable outlook reflects Moody's view that greater customer focus, new product offerings, and reasonable level of new restaurant growth both in the U.S. and internationally continues to strengthen the Starbucks brand and drives further improvement in earnings, cash flows, and debt protection metrics. The outlook also reflects our view that Starbucks will be able to fund a potential arbitration liability through internal cash flow, cash on hand and additional debt while maintaining a credit profile appropriate for its ratings. The outlook also incorporates Moody's view that management will balance returns to shareholders in a manner that preserves leverage and coverage appropriate for an investment grade rating.

A higher rating would require resolution of the binding arbitration with Kraft while maintaining solid operating performance, particularly same store sales and strong debt protection metrics with debt to EBITDA of under 3.0 times, EBITA coverage of gross interest exceeding 5.0 times and retained cash flow to debt of over 30%. A higher rating would also require very good liquidity and a balanced financial policy.

A material erosion of Starbucks brand equity or deterioration in operating performance could result in downward ratings pressure. Specifically, the ratings could be lowered in the event debt to EBITDA exceeded 3.5 times, EBITA coverage of interest falls below 4.5 times or retained cash flow to debt fell well below 25% for an extended period. Moreover, a resolution of the Kraft arbitration that materially exceeds our previous expectations and leads to a substantial deterioration of liquidity could negatively impact the ratings.

The principal methodology used in this rating was the Global Restaurant Industry Methodology published in June 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Starbucks Corp., headquartered in Seattle WA, operates a large chain of stores and channel development segment that offers premium coffee, tea, and complimentary products. The company has over 9,800 company-owned and in excess of 9,000 licensed stores. Annual revenues are over $14 billion.

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.

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.

William V Fahy
VP - Senior Credit Officer
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

Kendra Smith
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 upgrades Starbucks' unsecured ratings to Baa2; outlook stable
No Related Data.

 

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