Moody's upgrades Starbucks' senior unsecured ratings to 'A3' from 'Baa1,' affirms 'P-2' short-term commercial paper rating; rating outlook stable

NEW YORK , May 30, 2014 (press release) – Moody's Investors Service today upgraded Starbucks Corporation's ("Starbucks") senior unsecured ratings to A3 from Baa1. In addition, Moody's affirmed Starbucks short term commercial paper rating at P-2. The rating outlook is stable.

RATINGS RATIONALE

The ratings upgrade reflects Moody's expectation that Starbucks strategic initiatives will continue to drive strong operating performance and positive same store sales that in turn will generate stronger earnings, cash flows and credit metrics. The Prime-2 short-term commercial paper rating also reflects Moody's view that Starbucks liquidity will remain strong.

Ratings upgraded are:

- $550 million senior unsecured 6.25% notes, due August 15, 2017 to A3 from Baa1

- $750 million senior unsecured 3.85% notes, due October 1, 2023 to A3 from Baa1

- $350 million senior unsecured 2.0% notes, due December 5, 2018 to A3 from Baa1

- $400 million senior unsecured 0.875% notes, due December 5, 2016 to A3 from Baa1

- Senior unsecured shelf rating to (P)A3 from (P)Baa1

Rating affirmed;

- Short term commercial paper rating at Prime-2

The A3 senior unsecured rating reflects Starbucks global brand strength, dominant position in the US specialty coffee segment, global diversification, meaningful scale, solid credit metrics, and strong liquidity. The ratings also consider the negative impact that soft consumer spending, heightened competition, and cost pressures -- particularly commodities and labor -- could potentially have on earnings and debt protection metrics. The ratings also reflect the limited scope and concept concentration which is focused towards a single product -- coffee.

The stable outlook reflects Moody's view that greater customer focus, new product offerings, and disciplined 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 the A3 rating.

A higher rating would require maintaining solid operating performance, particularly positive traffic and average ticket that strengthens the brand and drives strong debt protection metrics with debt to EBITDA of around 2.0 times, EBITA coverage of gross interest exceeding 7.5 times and retained cash flow to debt of about 30% 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 strong liquidity.

Factors that could result in a downgrade include a deterioration in Starbucks operating performance that results in debt to EBITDA exceeding 2.5 times, EBITA coverage of interest falling below 6.5 times or if retained cash flow to debt fell below 25% on a sustained basis.

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 10,400 company-owned and in excess of 10,100 licensed stores. Annual revenues are over $15.5 billion.

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

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