DBRS Confirms Molson Coors at BBB (low), Stable

DBRS Limited (DBRS) confirmed the long-term and short-term ratings of Molson Coors Brewing Company (Molson Coors or the Company) and its related entities at BBB (low) and R-2 (low), respectively. The trends are Stable. The confirmation of the ratings reflects the acquisition of the remaining 58% interest in MillerCoors on October 11, 2016 (the Acquisition), as well as the expectation of continued deleveraging and ongoing cost-saving initiatives in a challenging competitive environment.

Molson Coors’ earnings profile is expected to remain relatively stable and supportive of the current BBB (low) rating over the near to medium term, benefiting from synergies and cost savings, despite intense competition and continuing pressure on beer volumes in core markets. Net sales should increase modestly, rising above $11.0 billion and toward the $11.5 billion level in the near to medium term, driven primarily by pricing as volume growth is expected to remain challenging, particularly in the United States and Canada. EBITDA margins should expand moderately through 2019, benefiting from the premiumization of the portfolio and the Company’s focus on achieving synergies and reducing costs. Cost savings are expected to be driven by improvements in supply chain, procurement and IT. As such, DBRS believes EBITDA should increase at a faster pace than the top-line, rising toward and above the $2.6 billion level in 2019.

Molson Coors’ financial profile is expected to improve toward a level considered more acceptable for the current BBB (low) rating in the near term, as credit metrics benefit from the use of free cash flow to repay maturing debt and commercial paper. Cash flow from operations should track operating income and increase toward the $2 billion level, while capex is expected to remain elevated as the Company integrates MillerCoors; invests in new, more flexible and more efficient breweries in British Columbia and Montréal; completes a new SAP implementation; and expands capacity. Dividends are expected to remain relatively flat in the near term, while the Company focuses on deleveraging. As such, DBRS believes free cash flow after dividends but before changes in working capital should be in the $800 million to $900 million per-year range through 2019. DBRS expects the Company to use the majority of its free cash flow in in the near term to repay maturing debt and/or commercial paper as part of its previously announced deleveraging intentions. As such, credit metrics should continue to improve toward a level more acceptable for the current BBB (low) rating (i.e., lease-adjusted debt-to-EBITDAR below 4.0 times (x)) toward the end of 2018 and into 2019. Should Molson Coors fail to return credit metrics to such a level within a reasonable time frame as a result of weaker-than-expected operating performance and/or more aggressive-than-expected financial management, a negative rating action could result.

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

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The principal methodologies are Rating Companies in the Consumer Products Industry, DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers and DBRS Criteria: Guarantees and Other Forms of Support, which can be found on dbrs.com under Methodologies.

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

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

The Senior Notes of Molson Coors Capital Finance ULC and the Senior Unsecured Notes of Molson Coors International LP are guaranteed by Molson Coors Brewing Company.