DBRS Places Coca-Cola Enterprises Senior Unsecured Debt Under Review – Negative

DBRS has today placed the Senior Unsecured Debt rating of Coca-Cola Enterprises Inc. (CCE or the Company) Under Review with Negative Implications. The change in rating status follows the announcement that The Coca-Cola Company (CCC; see separate DBRS press release) will acquire the assets and liabilities of CCE’s North American business in exchange for its 34% equity ownership in CCE (valued at roughly $3.4 billion) and the assumption of $8.9 billion of CCE debt. The rating for CCE’s Commercial Paper has been confirmed at R-1 (low) with a Stable trend. The transaction is subject to shareholder approval and is expected to close in Q4 2010.

The Under Review–Negative status primarily reflects the expected weakening in the Company’s business profile following the planned relinquishment of CCC’s equity interest in CCE. The 34% stake held by CCC has historically implied a high degree of support to CCE, which is factored into the rating. In addition, following the disposition of its North American business, CCE will become a smaller and less diversified company based exclusively in Europe. From a financial risk profile perspective, the transaction is viewed as modestly positive, mainly related to the reduction in CCE’s gross debt position.

In the event of a negative rating action following DBRS’s review, it is unlikely that the Senior Unsecured Debt rating would be downgraded by more than one notch. For this reason, and given the expectation for favourable liquidity and continuing stable cash flow generation, the Commercial Paper rating has been confirmed at R-1 (low), with a Stable trend. DBRS anticipates that it will complete its review prior to the closing of the transaction, which is expected in Q4 2010.

Concurrent with the transaction, CCE expects to raise debt of over $3 billion to fund various initiatives, including (i) a one-time cash special dividend to its shareholders (which no longer include CCC), (ii) the acquisition of CCC’s bottling operations in Norway and Sweden for $822 million (subject to various approvals), and (iii) the repurchase of up to $1 billion in shares (shortly after closing).

DBRS notes that a new entity, which will retain the CCE name, will be created through a split-off that will hold CCE’s European businesses. CCE’s shareholder will exchange each existing CCE share for a share in the new entity and hold 100% of the equity of the new entity. The Company will be CCC’s strategic bottling partner in Western Europe and the third largest independent bottler globally.

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

Coca-Cola Enterprises Inc. fully guarantees debt issued by Coca-Cola Enterprises (Canada) Bottling Finance.

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

This is a Corporate rating.