DBRS Comments on Coca-Cola Enterprises Inc. Share Repurchase Program

DBRS notes that its ratings and trends on Coca-Cola Enterprises Inc. (CCE or the Company) and The Coca-Cola Company (Coke) are unchanged following CCE’s announcement that the Company will begin to rebalance its use of free cash flow from debt reduction to increasing returns to shareholders. The Senior Unsecured Debt ratings for CCE and Coke are “A” and AA (low), respectively, and the Commercial Paper ratings are R-1 (low) and R-1 (middle), respectively. The trends are Stable.

CCE said that continued strong free cash flow, an improved long-term operating outlook and a strengthened balance sheet have enabled this shift in financial management. DBRS expects that CCE will use its free cash flow almost entirely for share repurchases and dividend increases over the near- to medium-term while maintaining net debt at level that would keep net debt-to-EBITDA in the 2.5x to 3.0x range. The Company plans to begin repurchasing its shares during the first quarter of 2010 under previously authorized share repurchase programs. CCE also said that its share repurchase plan may be adjusted depending on economic, operating or other factors, including acquisition opportunities.

DBRS’s ratings for CCE continue to be implicitly supported by: (1) the strength of Coke; (2) the overall health of the Coke system (the Coca-Cola Company together with its key bottlers – CCE, Hellenic, FEMSA and Amatil); and (3) CCE’s stable cash flow generation and financial profile.

Coke has delivered steady growth in operating income on the back of its strong portfolio of brands, geographic diversification and performance in emerging/developing markets, while key bottlers as a whole have reduced debt balances in recent years. These factors have supported the credit risk profile of the Coke system (i.e., debt-to-EBITDA was 1.67x times at year-end 2008 versus 1.72x in 2007 and 1.63x in 2006). CCE’s operating income has remained relatively flat while it has been reducing its own gross debt: to $8.7 billion at October 2, 2009 from $12 billion at December 31, 2002. The Company’s operating performance has recovered nicely in 2009 (following a weak 2008) and management’s outlook for earnings and free cash flow in 2010 remains positive.

The changes in financial management announced by CCE are acceptable to DBRS as the Company’s business profile and ratings remain implicitly supported by the strength of Coke and the Coke system. Coke and CCE’s outlooks benefit from steady growth in emerging economies, and our expectation for stable financial profile for the Coke system. A significant change in operating performance and/or debt-financed acquisitions/share repurchases within the system that has a material effect on credit metrics for the Coke system could impact the credit rating or trend in the future.

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.