Colombia: Standard & Poor's Ratings may raise the rating on Bavaria S.A.
Standard & Poor's Ratings Services said on July 21 that it placed its 'BB' foreign currency long-term corporate credit rating on Bavaria S.A. on CreditWatch with positive implications.
The CreditWatch listing follows Colombia-based Bavaria and U.K.-based SABMiller PLC's announcement on July 19, 2005, that SABMiller has agreed to acquire Bavaria's operations.
The 'BB' senior unsecured debt rating on the $500 million bonds issued by Bavaria due 2010 is also placed on CreditWatch with positive implications. With about 27 million hectoliters of beer sold in 2004, Bavaria is one of the largest beer producers in Latin America, the sole beer producer in Colombia, and the most important producer in Peru, Panama, and Ecuador, countries with a combined population of 89 million.
"The CreditWatch placement reflects the overall benefits Bavaria is likely to enjoy as a result of the expected financial and operational support of SABMiller," said Standard & Poor's credit analyst Federico Mora.
SABMiller intends to reduce Bavaria's operating costs and invest in the development of a portfolio of distinct and differentiated brands to drive further revenue growth.
It is expected that the announced acquisition will be financed from available cash balances, and from short-term to medium-term bank facilities arranged at the parent company level. Significant local debt at the Bavaria group level creates structural subordination issues for SABMiller, as all bondholders do not have equal access to the group's assets. We expect these issues to be mitigated in the short term by SABMiller.
The choice of strategy implemented will have an impact on the rating of the debt issued by Bavaria S.A., the main subsidiary of the Bavaria group. The CreditWatch is expected to be resolved as information on the group's financial integration and its choice of remedy to mitigate structural subordination issues becomes available.
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