DBRS Places Coca-Cola Company Ratings Under Review with Negative Implications

DBRS has today placed the AA (low) and R-1 (middle) ratings of The Coca-Cola Company (CCC or the Company) Under Review with Negative Implications following today’s announcement that the Company plans to acquire Coca Cola Enterprises Inc.’s (CCE) North American bottling business. The rating action reflects the fact that the proposed transaction will lead to a weaker financial profile at CCC, although DBRS recognizes that the transaction will generate operational and system synergies that could increase the growth rate and cash flow on a pro-forma basis over time.

The transaction includes CCC acquiring CCE’s North American assets and liabilities as well as assuming $8.9 billion of CCE’s debt for its current 34% stake in CCE (valued at $3.4 billion). In terms of operating income, CCC will gain EBITDA of approximately $1.5 billion from CCE’s North American operation. On a pro-forma basis at December 31, 2009, DBRS estimates that CCC’s total debt-to-EBITDA will increase to 2.0 times from 1.25 times which is aggressive for the current ratings. The transaction is expected to close in the fourth quarter of 2010.

CCC will acquire CCE's entire North American business, which consists of approximately 75% of U.S. bottler-delivered volume and almost 100% of Canadian bottler-delivered volume. At the close of the transaction, CCC will have direct control over approximately 90% of the total North American volume, including its current direct businesses. In addition, CCC will rename the sales and operational elements of the North American businesses Coca-Cola Refreshments USA, Inc. and Coca-Cola Refreshments Canada, Ltd. which will be wholly-owned subsidiaries of CCC.

In a concurrent agreement, CCC and CCE have agreed in principle that CCE will buy CCC’s bottling operations in Norway and Sweden for $822 million, subject to the signing of definitive agreements, and that CCE will have the right to acquire CCC’s 83% equity stake in its German bottling operations 18 months to 36 months after closing for fair value.

As a result of these agreements, CCC has not made any share repurchases during the current fiscal year and will continue to be out of the market until the close of these transactions. However, the Company remains committed to share repurchases of $1.5 billion in 2010.

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.