CHICAGO--(BUSINESS WIRE)--Fitch Ratings has assigned a 'BBB+' rating to Coca-Cola Enterprises, Inc.'s (CCE) $300 million 4.5% senior unsecured notes due Sept. 1, 2021 and $100 million senior unsecured floating rate notes due Feb. 18, 2014. The interest rate on the floating rate notes is based on the three month USD LIBOR, reset quarterly, plus 30 basis points. The Rating Outlook is Stable.
The new notes will be issued by the parent company Coca-Cola Enterprises, Inc. and will rank pari passu with the company's senior unsecured indebtedness. The notes are being issued under the company's indenture dated Aug. 31, 2010. Significant covenants include, but are not limited to, limitations on liens and restrictions on sale-leaseback transactions. CCE expects to use the net proceeds of this offering for general corporate purposes, including share repurchases and refinancing of commercial paper. The notes are callable by CCE subject to a make-whole provision. CCE had approximately $2.3 billion of debt as of Dec. 31, 2010.
For the year ended Dec. 31, 2010, CCE's operating results were in line with Fitch's expectations. CCE had 4% comparable year-over-year bottle and can volume growth and 1.5% growth in pricing. On a pro forma basis including the operations of Norway and Sweden, Fitch estimates CCE's total debt-to-operating EBITDA was approximately 2.0 times (x) on Dec. 31, 2010.
CCE's ratings reflect the company's free cash flow (FCF) generation which is enabled by its sustainable healthy operating margins; its stated leverage target of net debt-to-EBITDA of 2.5x to 3.0x; and Fitch's expectation that CCE will meet and maintain its target. Supporting the ratings is CCE's exclusive right to manufacture, sell and distribute Coca-Cola brand beverages within its territories in Western Europe. The ratings also consider the limited geographic diversity of CCE and its relative importance within the Coca-Cola system, which is comprised of Coca-Cola and its franchise bottlers. The ratings further incorporate CCE's relatively shareholder-friendly $1 billion share repurchase program to be concluded at the end of the first quarter of 2012. Uncertainty surrounding the funding of the potential acquisition of the German bottler from Coca-Cola is also a factor in the ratings.
Maintaining lower leverage than targeted in combination with a stated commitment to a lower leverage range could result in a positive rating action. Coca-Cola acquiring a significant equity stake in CCE and gaining board representation could also result in a positive rating action. Negative rating pressure could result from the following individually or in combination: carbonated soft drink volume declines without offsetting gains in growing beverage categories, margin declines due to competitive pressures, and more aggressive financial policies.
At Dec. 31, 2010, CCE had adequate liquidity with $321 million of cash and an undrawn four-year $1 billion revolving credit facility which expires August 2014. Given Legacy CCE's Europe operations generated over $400 million of average FCF annually over the past three years, CCE's expected to maintain adequate liquidity. The addition of Norway and Sweden bottling profits will enhance CCE's expected annual FCF. CCE does not have a long-term debt maturity until March 13, 2013 when its wholly owned subsidiary Coca-Cola Enterprises (Canada) Bottling Finance Company's guaranteed senior unsecured notes 200 million Swiss franc notes mature.
The guaranteed unsecured notes rating of Coca-Cola Enterprises (Canada) Bottling Finance Company is based on The Coca-Cola Company's wholly owned subsidiary Coca-Cola Refreshments USA, Inc.'s Issuer Default Rating (IDR) of 'A+'. Post-transaction, Coca-Cola Refreshments USA, Inc. owns Legacy CCE's U.S. bottling operations. The Coca-Cola subsidiary inherited the guarantee of these notes since the transaction was structured as an acquisition and a spin-off with the Coca-Cola subsidiary acquiring the legal entity which guarantees the notes.
On Oct. 2, 2010, The Coca-Cola Company (Coca-Cola; IDR rated 'A+' by Fitch) and Legacy CCE completed a transaction in which Coca-Cola acquired Legacy CCE's North American bottling operations in exchange for Coca-Cola's 34% stake in Legacy CCE and Coca-Cola's assumption of the vast majority of Legacy CCE's debt. CCE is comprised of Legacy CCE's European territories - Great Britain, Belgium, Netherlands, Luxembourg, France and Monaco. Additionally, CCE acquired the Norwegian and Swedish bottlers owned by Coca-Cola for $822 million. Further, CCE gained the right to purchase at fair value the German bottler owned by Coca-Cola in 18 to 39 months. While a fair value has yet to be determined, it is expected to be significant. As a point of reference, the population of Germany is approximately 82 million, and CCE's territory covers roughly 163 million consumers.
Fitch currently rates CCE as follows:
Coca-Cola Enterprises, Inc.
--Long-term Issuer Default Rating (IDR) 'BBB+';
--Short-term IDR 'F2';
--Bank credit facility 'BBB+';
--Senior unsecured notes 'BBB+';
--Commercial paper 'F2'.
Coca-Cola Enterprises Finance LT1 Commandite S.C.A.
--Long-term IDR 'BBB+'.
Coca-Cola Enterprises (Canada) Bottling Finance Company
--Long-term IDR 'BBB+';
--Guaranteed senior unsecured notes 'A+'.
The Rating Outlook is Stable.
Additional information is available at 'www.fitchratings.com'.
Disclosure: Veronique Morali, vice chairman of Fitch Group, Inc. and a member of its board, is also a member of the board of Coca-Cola Enterprises, Inc. Ms. Morali does not participate in any Fitch rating committees, including that of Coca-Cola Enterprises, Inc.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology', dated Aug. 16, 2010;
--'Parent and Subsidiary Rating Linkage', dated July 14, 2010.
Applicable Criteria and Related Research:
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646
Parent and Subsidiary Rating Linkage Criteria Report
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=534826
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