DBRS Confirms Molson Coors Brewing Company at BBB (low), Stable

DBRS Limited (DBRS) confirmed Molson Coors Brewing Company’s (Molson Coors or the Company) Issuer Rating and Senior Unsecured Debt rating at BBB (low) and Commercial Paper rating at R-2 (low), all with Stable trends. DBRS also confirmed Molson Coors International LP’s Senior Unsecured Notes at BBB (low) with a Stable trend and discontinued Molson Coors Capital Finance ULC’s Senior Notes due to repayment. The confirmations continue to reflect the expectation of further deleveraging and ongoing cost-saving initiatives in a challenging competitive environment.

DBRS believes the Molson Coors’ earnings profile should remain sufficient to support the current BBB (low) Issuer Rating, despite near-to-medium term industry headwinds and continuing pressure on volumes in core markets, as the Company continues to focus on reducing costs. Although the Company’s revenues and EBITDA in 2018 and H1 2019 were below DBRS’s expectations, the Company’s overall credit risk profile remains reasonable for the rating category. Net sales are expected to remain flat at approximately $10.8 billion, based primarily on price increases, premiumization and new product launches, as maintaining volumes is expected to remain challenging. DBRS expects margins to continue to be pressured by volume deleverage and input cost increases but believes these headwinds should be partially offset by cost-saving initiatives and price increases. As such, DBRS expects EBITDA to be moderately lower at approximately $2.3 billion over the near term and to increase only modestly toward $2.4 billion in 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 capex is expected to remain relatively stable, dividends are expected to increase by $70 million in 2019 and by $140 million in 2020 (full-year impact), to reach the Company’s previously announced target of 20% to 25% of trailing annual EBITDA. DBRS therefore estimates that free cash flow (after dividends but before changes in working capital) should be in the $800 million range in 2020. 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 4.0 times) toward the end of 2019 and into 2020. That said, should Molson Coors fail to return to acceptable credit metrics 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. Going forward, 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 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.

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 & Criteria.

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.

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.

This rating is endorsed by DBRS Ratings Limited for use in the European Union. The following additional regulatory disclosures apply to endorsed ratings:

The last rating action on this transaction took place on September 21, 2018, when all debts were confirmed with Stable trends.

For further information on DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Lead Analyst: Vikas Munjal, Assistant Vice President - Global Corporates - Consumer and Retail
Rating Committee Chair: Anil Passi, Managing Director - Consumer, Communications, Retail & Media
Initial Rating Date: March 21, 2005

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