Kellogg has 'significant' financial risk profile, marked by company's expected increased debt levels following acquisition of Pringles, S&P says

NEW YORK , May 14, 2012 (press release) – Standard & Poor's Ratings Services said today that it assigned its 'BBB+' senior unsecured debt rating to Kellogg Co.'s (BBB+/Negative/A-2) proposed approximately $1.5 billion multi-tranche senior unsecured notes. The company will issue the notes off of its Rule 415 shelf registration for debt securities. Kellogg intends to use net proceeds from this offering for general corporate purposes, including financing a portion of the purchase of its pending acquisition of Pringles. We estimate that the Battle Creek, Mich.-based company will have roughly $9.3 billion in adjusted debt outstanding after the transaction (including our adjustments for operating leases and pension obligations).

Our 'BBB+' corporate credit rating reflects Kellogg's "strong" business risk profile. Key credit factors considered in assessing Kellogg's business risk profile include its well-recognized brands, leading market positions in the ready-to-eat (RTE) cereal and snack food industries, and product and geographic diversity. These factors are partially offset by the company's
exposure to volatile commodity costs and participation in the highly competitive cereal market, which has experienced slower growth in the U.S. Standard & Poor's believes Kellogg has a "significant" financial risk profile, marked by the company's expected increased debt levels following the acquisition, which will result in credit measures weakening to those more in
line with indicative ratios for a significant financial risk profile, including leverage between 3x and 4x and funds from operations to total debt of between 20% and 30%.

For the full corporate credit rating rationale, see Standard & Poor's research report on Kellog Co.,published on April 13, 2012, on RatingsDirect on the Global Credit Portal.

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