Moody's assigns Baa1 rating to Starbucks' US$750M in proposed senior unsecured notes; outlook positive

Nevin Barich

NEW YORK , December 2, 2013 (press release) – Approximately $2.1 billion of rated debt securities affected

Moody's Investors Service today assigned a Baa1 rating to Starbucks Corporation's ("Starbucks") proposed 3- year and 5-year senior unsecured note offerings (aggregating $750 million in total). The rating outlook is positive.

Proceeds from the proposed notes will be used to fund a portion of the recent arbitration award to Kraft Foods Global, Inc. and for general corporate purposes.

RATINGS RATIONALE

The Baa1 senior unsecured rating reflects Starbucks global brand strength, dominant position in the US specialty coffee segment, global diversification, meaningful scale, solid credit metrics, and very good liquidity. Fundamentally, the ratings also reflect the negative impact that soft consumer spending and heightened competition could have on consumer visits, operating performance, and debt protection measures if overall consumer spending remains soft for a prolonged period. The ratings also consider the limited scope and concept concentration which is focused towards a single product -- coffee.

The positive outlook reflects Moody's view that greater customer focus, new product offerings, and reasonable level of new restaurant growth both in the U.S. and internationally should continue to strengthen the Starbucks brand and drive further improvement in earnings, cash flows, and debt protection metrics. The outlook also incorporates Moody's view that management will balance returns to shareholders in a manner that preserves credit metrics and liquidity appropriate for a higher rating.

A higher rating would require maintaining solid operating performance, particularly positive same store sales and strong debt protection metrics with debt to EBITDA of under 2.5 times, EBITA coverage of gross interest of around 7.0 times and retained cash flow to debt of over 25% on a sustained basis. An upgrade would also require management's firm commitment to a balanced financial policy that is consistent with a higher rating and maintaining very good liquidity.

A material erosion of Starbucks brand equity or deterioration in operating performance could result in downward ratings pressure. Specifically, the ratings could be lowered in the event debt to EBITDA exceeded 3.0 times, EBITA coverage of interest falls below 5.5 times or retained cash flow to debt fell well below 25% for an extended period. Moreover, the adoption of an aggressive financial policy towards dividends and share repurchases or deterioration in liquidity could negatively impact the ratings.

Starbucks Corp., headquartered in Seattle WA, operates a large chain of stores and channel development segment that offers premium coffee, tea, and complimentary products. The company has about 10,200 company-owned and in excess of 9,500 licensed stores. Annual revenues are over $14.5 billion.

The principal methodology used in this rating was the Global Restaurant Industry Methodology published in June 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

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