Standard & Poor's assigns preliminary BBB-, BB+ ratings to Molson Coors Brewing's senior unsecured rating, shelf registration of debt securities

Nevin Barich

NEW YORK , April 26, 2012 (press release) – Standard & Poor's Ratings Services today assigned its preliminary 'BBB-' senior unsecured rating and its preliminary 'BB+' subordinated rating to Denver- and Montreal-based Molson Coors Brewing Co.'s shelf registration of debt securities. In addition, we assigned Molson Coors' proposed senior unsecured notes our 'BBB-' issue-level rating. Molson Coors will issue the
offering under the company's shelf registration, and we expect it to total about $1.9 billion and comprise a five-year, 10-year, and 30-year tranche (actual amounts and maturity dates are to be finalized at the close of the transaction). The company intends to use net proceeds from this offering to partially fund its pending acquisition of StarBev L.P., a leading Central and Eastern European brewing company.

At the same time, we have affirmed our 'BBB-' rating on the company's existing senior unsecured debt and removed it from CreditWatch, where it was placed with negative implications on April 3, 2012, following the company's announcement that it agreed to acquire StarBev for EUR2.65 billion (about $3.5 billion). The CreditWatch placement reflected limited information on the company's pro forma capital structure at the time of the acquisition announcement, which was necessary to determine if there was any structural subordination for the issue-level ratings. The 'BBB-' rating on the Molson Coors' senior unsecured debt is at the same level as our 'BBB-' corporate credit rating on the company because certain of the company's Canadian and U.K. subsidiaries will unconditionally guarantee the existing and proposed unsecured debt.

The corporate credit rating on Molson Coors is 'BBB-' and the rating outlook is negative. The rating reflects our assessment of the company's business risk profile as "satisfactory" and its financial risk as "significant." Key credit factors in our business risk assessment include Molson Coors' position as an international brewer, its geographic diversity, good brand recognition, and historically good cash flow generation, despite challenging industry conditions within the existing mature, low-growth, and seasonal markets in which it competes. The addition of StarBev will provide some additional diversification in terms of geography and brands, as well as access to faster-growing developing markets. Our assessment of Molson Coors' significant financial risk incorporates expected weaker pro forma financial ratios. We estimate leverage (as measured by the ratio of total debt to EBITDA) to be weak in 2012, yet improve to about 4x by the end of 2013. We also estimate that funds from operations to total debt will rise to 20% by this time, assuming all discretionary cash flows are applied to debt over the
near-to-intermediate term. These metrics would be consistent with a "significant" financial risk profile as per our criteria.

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