Fitch Ratings has assigned Anheuser Busch InBev’s (ABI) subsidiary Anheuser Busch InBev Finance Inc.’s (ABIFI) USD4bn bond issue a senior unsecured rating of ‘A’ which is in line with ABI’s Issuer Default Rating (IDR) of ‘A’ with a Stable Outlook.
ABIFI’s notes rank pari passu with most of ABI’s other debt and benefit from the same system of unconditional, full and irrevocable cross guarantees enjoyed by debt incurred by Anheuser-Busch InBev NV/SA, Anheuser-Busch InBev Worldwide Inc, Anheuser-Busch Companies LLC. (formerly Anheuser-Busch Companies Inc), Brandbrew S.A. and CoBrew NV. The debt of these entities accounted for the majority of group debt. AmBev, an important cash generator within the ABI group and currently in a net cash position remains however excluded from the pool of guarantors. Based on the ABIFI notes prospectus, ABI also has the option to exclude Grupo Modelo SAB de CV (Modelo) when its acquisition is finalized.
Please refer to the group structure chart in Fitch’s Credit Update for ABI published on 14 December 2012 atfor full details of the relations among the entities mentioned above and their total indebtedness. ABIFI was only incorporated in December 2012 and, therefore did not have any outstanding debt or cash flow generation at the time of our last Credit Update.
ABI’s credit profile is supported by the following key factors, among others:
Leading Global Player:
ABI’s rating benefits from its size and leadership in the global beer industry, benefiting from a broad portfolio of local and global brands, sold across all pricing points, as well as strong routes to market and a highly effective approach to managing costs. ABI’s operations are balanced across profitable, mature markets and high growth ones.
Rating Affirmation on Modelo acquisition:
The affirmation in July 2012 of ABI’s ‘A’ IDR following the agreement to acquire 50% of Modelo reflected Fitch’s expectation that the transaction (expected to complete in 2013) will only mildly derail the process of steady deleveraging achieved through to end-2011 and that full control of Modelo will strengthen ABI’s business and financial profile. Future financial policies, combined with very strong free cash flow (FCF) generation, should enable ABI to maintain net debt/EBITDA at or below 2.0x from end-2014.
Superior Cash Flow Generation:
ABI’s FCF of between USD5bn and USD7bn annually projected for 2012-2015 is superior both in dollar terms and as a proportion of sales to most corporates in the ‘A’ rating category. Fitch calculates that ABI’s lease, pension, minority dividend adjusted net debt/EBITDARP and funds from operations (FFO) adjusted leverage will only temporarily exceed 2.0x and 2.5x respectively in 2013, despite up to approximately USD15.4bn merger and acquisition net spending over 2012-2013 from the Dominicana and Modelo acquisitions and increases to dividend payouts.
RATING SENSITIVITY GUIDANCE:
Negative: Future developments that could lead to negative rating actions include:
– Any debt-funded acquisitions, material signs of weakness in the company’s Brazilian or US operations or generous shareholder distributions causing leverage to remain at or above 2.0x-2.5x on a permanent basis.
While not expected before 2014, future developments that could lead to a positive rating action include:
– a combination of leverage falling closer to 1.0x, EBITDA-based interest cover rising to more than 10x-12x, wider geographic diversification while maintaining strong profitability and lower M&A risk.