UK: Moody's may cut SABMiller, Miller Brewing ratings
Moody's Investors Service has placed on July 19 the Baa1 long-term debt ratings of SABMiller plc ("SABMiller") and Miller Brewing Company ("MBC"), a wholly-owned subsidiary of SABMiller, on review for possible downgrade following the announcement that the group will acquire Bavaria S.A. for a total implied enterprise value of approximately US$7.8 billion, according to Reuters. At this stage, the rating agency expects that a possible downgrade, if any, would be limited to one notch, absent any structural subordination issue.
Ratings placed on review for possible downgrade are as follows:
- The Baa1 rating of SABMiller's US$300 million bond issue due 2033.
- The Baa1 rating of MBC's US$1.1 billion bond issues due 2013.
- The Baa1 rating of MBC's US$600 million bond issues due 2008.
The rating review has been prompted by SABMiller's announcement that it will acquire Bavaria, South America's second largest beer producer. Though the transaction has a large equity component, it will materially increase SABMiller's leverage and weaken its credit metrics compared to FYE 31 March 2005, given that the acquired company, which is rated Ba3 by Moody's, has a weaker financial profile than SABMiller. Moody's notes that the transaction should have the positive effect of increasing SABMiller's geographic diversification and give the company's leading positions in four markets. Nonetheless, it will also imply additional potential cash-flow volatility as Bavaria's business is exclusively located in South America with a strong concentration in Colombia. Moreover, the transaction raises some integration risks, Moody's cautioned.
Moody's said that its rating review will focus on: (i) The impact of this significant acquisition on SABMiller's product portfolio, distribution infrastructure, profitability and debt protection measures. (ii) SABMiller's plans and prospects for reducing debt in the intermediate term. (iii) The legal structure of the SABMiller group post Bavaria's acquisition and its implication for existing bondholders. (iv) The company's ongoing appetite for add-on acquisitions.
Headquartered in Woking, UK, SABMiller is the world's second largest brewer with leading positions in its key markets (e.g. South Africa, the United States, Czech Republic). SABMiller also has a significant presence in the African soft beverage sector. It had revenues of US$12.9 billion in the fiscal year ending 31 March 2005.
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