DBRS Rates PepsiCo, Inc. $1.0 Billion Note Issue at AA (low)

DBRS has today assigned a rating of AA (low) with a Stable trend to PepsiCo, Inc.’s (PepsiCo or the Company) issue of $1.0 billion, 3.75% Senior Unsecured Notes (the Notes) due March 1, 2014. The Notes will be unsecured obligations, ranking pari passu with PepsiCo’s other senior unsecured indebtedness. Proceeds are expected to be used for general corporate purposes.

DBRS notes that PepsiCo’s gross debt has increased substantially since F2007 (from $4.2 billion to $8.2 billion at December 31, 2008), due in part to the Company’s ongoing share repurchase program. While the increase in debt is material, it was expected and had been factored into the current ratings.

DBRS expects debt levels to rise again in F2009 as the Company continues to use free cash flow to support share repurchases versus debt reduction. However, DBRS expects relatively stable operating cash flow in F2009 will keep the increase in leverage to a modest level and therefore not affect the ratings. DBRS notes that while the Company’s financial profile remains strong, further increases in leverage beyond DBRS’s current expectations could begin to pressure the parameters of the current rating category.

DBRS notes that PepsiCo’s well-established brands, strong market position and improving diversification continue to drive relatively stable performance, despite challenging macro economic conditions. For the year ended December 31, 2008, the Company generated operating earnings (before unusual items) of $6.9 billion, on sales of $43.3 billion, compared to operating earnings of $7.2 billion, on sales of $39.5 billion in F2007.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Consumer Products which can be found on our website under Methodologies.

This is a Corporate rating.