DBRS Downgrades Coca-Cola Company Ratings to A (high) and R-1 (low)

DBRS has today downgraded the Senior Unsecured Debt rating and Short-Term Issuer Rating of The Coca-Cola Company (CCC or the Company) by one notch to A (high) and R-1 (low), respectively, and has removed the ratings from Under Review with Negative Implications, where they were placed on February 25, 2010. The rating action takes into account the Company’s weaker financial profile following the announcement that it has closed the transaction whereby CCC has acquired the North American bottling business of Coca Cola Enterprises Inc. (CCE).

CCC’s financial profile is no longer commensurate with its previous AA (low) and R-1 (middle) ratings. With the assumption of CCE’s debt, the Company’s debt levels have materially increased to over $20 billion (from roughly $12 billion); this increase will more than offset the gain of approximately $1.5 billion in EBITDA from CCE’s North American operations with respect to coverage ratios. On a pro forma basis for the rolling twelve months to July 2, 2010, DBRS estimates that Coke’s total debt-to-EBITDA increases to approximately 1.8 times and cash flow-to-total debt declines to approximately 0.5 times. In addition, the Company fully intends to repurchase $1.5 billion in shares during the remainder of 2010. The buyback program was halted when the CCE transaction was announced in February 2010. Given the focus on shareholder-friendly initiatives (such as share repurchases and increased dividends) and the higher debt levels, the Company’s metrics are unlikely to be restored to pre-acquisition levels.

The current ratings are expected to remain stable. DBRS recognizes that the transaction will generate operational and system synergies that could boost the Company’s growth rate and cash flow on a pro-forma basis over time. In addition, the Company’s business profile has strengthened modestly from the transactions; CCC will have direct control over approximately 90% of the total North America volume with the acquisition, including its current direct businesses. Manufacturing, supply chain logistics and distribution efficiencies are all expected to improve. The transaction should generate operational synergies of approximately $350 million over four years. In addition, CCC’s solid business profile is supported by its leading market position in the carbonated soft drink market, strong brand portfolio and geographic diversification. The Company’s focus on high-growth international markets supports the earnings and cash flow outlook.

In conjunction with the above rating actions, DBRS has discontinued the long-term ratings of CCE and CCE (Canada) Bottling Finance Limited since CCE’s European bottling operations have been spun off to International CCE (New CCE) and CCE’s North American operations now reside at CCC (for further detail, please see DBRS press release on CCE published today). In addition, New CCE has acquired

CCC’s bottling operations in Norway and Sweden and has the right to acquire CCC’s 83% stake in its German bottling operations. New CCE will be CCC’s strategic bottling partner in Western Europe and the third largest independent bottler globally. In August 2010, DBRS discontinued CCE’s and CCE (Canada) Bottling Finance’s commercial paper ratings as CCE had terminated the program and will not issue CCE commercial paper going forward.

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.