DBRS Places Molson Coors Under Review with Negative Implications

DBRS Limited (DBRS) has today placed the ratings of Molson Coors Brewing Company (Molson Coors or the Company) and its related entities Under Review with Negative Implications, following the Company’s announcement that it has entered into a definitive agreement with Anheuser-Busch InBev (AB InBev) to acquire SABMiller’s 58% share of the MillerCoors Joint Venture (MillerCoors), as well as the global rights to the Miller brand family.

Molson Coors currently owns 42% of MillerCoors. Under the agreement, Molson Coors will also acquire full ownership of the Miller brand portfolio outside of the United States and retain the rights to all of the brands currently in the MillerCoors portfolio for the U.S. market. The transaction is valued at approximately USD $12.0 billion, and is conditional upon the closing of AB InBev’s acquisition of SABMiller.

The transaction, which is expected in H2 2016, is intended to be financed through a combination of cash on hand and proceeds from issuances of new debt and equity. Molson Coors has received committed debt financing from Citigroup Global Markets, Bank of America Merrill Lynch and UBS Investment Bank.

The Under Review with Negative Implications status reflects the increase in financial leverage that would result from the acquisition (DBRS estimates that lease-adjusted debt-to-EBITDA will increase to above five times (x) due to incremental debt on account of the transaction, from approximately 2.7x in H1 F2015). Consequently, Molson Coors’ credit risk profile would no longer be consistent with its current rating.

That said, DBRS notes that the acquisition is expected to be more than 25% accretive to Molson Coors’ cash earnings in the first full year of operations before the benefit of synergies. Further, because this is an asset transaction for U.S. tax purposes, it is accompanied by immediate, substantial cash tax benefits. DBRS also notes that the Company expects to realize annualized cost synergies of at least $200 million by the fourth full year following the transaction, primarily from procurement improvements, supply network optimization and operational efficiencies.

DBRS believes that while the increase in financial leverage will require a negative rating action, the severity of such action is likely to be moderated by the significant strategic and operational benefits that Molson Coors is poised to realize on account of its consolidation of ownership in MillerCoors. Therefore, in its review, DBRS will focus on (1) assessing the business risk profile of the combined entity, including the potential benefits to scale and geographic diversification, as well as the risks associated with integration and realization of synergy potential; (2) Molson Coors’ financial risk profile on a pro forma basis; and (3) the Company’s longer-term business strategy and financial management intentions, including its deleveraging plan.

Should the transaction close in a manner substantially similar to that proposed, Molson Coors’ credit risk profile could remain investment grade, despite substantially higher financial leverage based primarily on DBRS’s assessment of the viability of the Company’s committed deleveraging plan.

DBRS will proceed with its review as more information becomes available and aims to resolve the Under Review status before the closing of the transaction.

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

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

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

Molson Coors Capital Finance ULC and Molson Coors International LP are guaranteed by Molson Coors Brewing Company.

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