DBRS Confirms Ratings of Molson Coors Brewing Company

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, with Stable trends. The confirmations continue to reflect the expectation of further deleveraging and ongoing cost-saving initiatives in a challenging competitive environment.
Molson Coors’ earnings profile is expected to remain relatively stable over the near to medium term, despite intense competition and continuing pressure on volumes in core markets, as the Company continues to focus on reducing costs. Net sales are expected to remain relatively flat over the near to medium term at approximately $11 billion, based primarily on price increases, as volume growth is expected to remain challenging, particularly in the United States. DBRS expects margins to continue to be pressured by volume deleverage and input cost increases, but believes these headwinds should be largely offset by cost-saving initiatives and price increases. As such, DBRS expects EBITDA to remain relatively flat at approximately $2.5 billion over the near term and to increase only modestly toward $2.6 billion over the medium term.

Molson Coors financial profile is expected to continue to improve toward a level considered more acceptable for the current BBB (low) rating in the near term as credit metrics should benefit from debt repayment. Cash flow from operations is expected to track operating income, at approximately $2 billion over the near to medium term. While capital expenditure is expected to increase modestly, dividends are expected to remain relatively flat over the near term. That said, after reaching lease-adjusted debt-to-EBITDAR of approximately 3.75 times in mid-2019, the Company intends to increase its dividend payout ratio to 20% to 25% of trailing annual EBITDA (a 40% to 75% dividend increase). DBRS therefore estimates that free cash flow (after dividends but before changes in working capital) should be in the $900 million range in 2019. DBRS expects the Company to continue to use most of its free cash flow in the near term to repay debt. As such, credit metrics should continue to improve meaningfully toward a level considered more acceptable for the current BBB (low) rating (i.e., lease-adjusted debt-to-EBITDA below 4.0x) toward the end of 2018 and into 2019. That said, should Molson Coors fail to return credit metrics toward a level considered more acceptable for the current BBB (low) rating within a reasonable timeframe, as a result of weaker-than-expected operating performance and/or more aggressive-than-expected financial management, a negative rating action could result. After reaching its leverage target in 2019, DBRS expects the Company to return to a more balanced approach to capital allocation, including the potential for increasing returns to shareholders, further debt repayment and investments in growth.

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

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.

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 under Related Documents or by contacting us at info@dbrs.com.

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 for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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.

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