MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings has affirmed the following credit ratings of Coca-Cola Femsa S.A.B. de C.V. (KOF):
--Foreign currency Issuer Default Rating (IDR) at 'A';
--Local currency IDR at 'A';
--National scale long-term rating at 'AAA(mex)';
--National scale short-term rating at 'F1+(mex)';
--Senior notes for USD500 million due 2020 at 'A';
--Certificados Bursatiles for MXN7,500 million due 2023 at 'AAA(mex)'.
The Rating Outlook is Stable.
KEY RATING DRIVERS:
These rating actions follow the announcement by KOF that it has reached an agreement to acquire 100% of Spaipa S.A. Industria Brasileira de Bebidas (Spaipa) for an enterprise value of USD1,855 million. The transaction will be fully funded with additional debt and Fitch estimates that KOF's total debt to EBITDA and net debt to EBITDA will increase on a pro forma basis to approximately 2.0x and 1.6x by the year-end 2013. Fitch expects that leverage will gradually decline in the following years approaching historical levels. The acquisition is subject to customary approvals and is expected to close in the last quarter of 2013.
From a business perspective, the acquisition of Spaipa by KOF is positive since it will increase its geographic foot print in Brazil by integrating contiguous territories and capturing synergies of around USD33 million in the following 18 to 24 months. In addition, the integration of Spaipa operations will allow KOF to increase its volume by 40% in Brazil as well as to reach 39% of the Coca-Cola system's volume in the country.
Spaipa territories cover all the state of Parana and more than half of the state of Sao Paulo and have four bottling plants and seven distribution centers. During the last 12 months as of June 2013, the company sold 233.3 million unit cases of beverages, including beer, and generated revenues and EBITDA of around USD905 million and USD134 million, respectively.
The ratings incorporate Fitch's expectation that KOF's total debt to EBITDA and net debt to EBITDA ratios should strengthen in the following two years after integrating the operations of Spaipa to levels around 1.5x and 1.3x, respectively, through higher EBITDA generation or debt reduction. For the last 12 months (LTM) ended June 30, 2013, the company's total debt to EBITDA and net debt to EBITDA were 1.3x and 0.6x, respectively. KOF's total debt as of June 30, 2013 was MXN37.8 billion.
Strong Free Cash Flow (FCF) Generation
Fitch expects KOF's FCF generation to remain strong over the long term. During the last five years, the company's FCF estimated by Fitch after covering capital expenditures and dividends has averaged annually approximately MXN5.5 billion. Fitch believes that KOF's FCF generation provides financial flexibility across the ups and downs of economic cycles to maintain a conservative capital structure.
Ample Liquidity Position
KOF's liquidity position is ample. As of June 30, 2013, the company had MXN19.9 billion of cash and marketable securities and MXN8 billion of short-term debt maturities in 2013 and 2014. In addition, the company used around MXN5.8 billion to settle the acquisition of Companhia Fluminense de Refrigerantes, S.A. (Fluminese) which was closed in August 2013. Fitch believes that KOF has sufficient flexibility to face upcoming debt maturities after 2015 considering its historical solid financial position and ample access to capital markets and banks loans.
Fitch incorporates the greater diversification of KOF's revenue and EBITDA coming from its operations from South America. Assuming a successful closing of Spaipa acquisition and including the operations of Fluminense, the revenues and EBITDA from its operations in South America would represent approximately, 58% and 52% of its consolidated results.
KOF's ratings continue to reflect the company's substantial FCF generation, solid financial position, ample financial flexibility and strong business profile. The ratings also reflect the company's strategic relationship with The Coca-Cola Company (KO; rated 'A+'/Outlook Stable) and the explicit and implicit financial support KOF has received from KO. In addition, the ratings consider the geographical diversification of the EBITDA generated outside Mexico, as well as its strong credit profile.
Downgrade pressures in the ratings could be triggered if KOF's leverage ratios in the following 18 to 24 months are above Fitch's expectation or by a change in the company's long term capital structure that materially deviates from its historical levels. After the acquisition of Spaipa, Fitch does not foresee any positive rating action over the medium term.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 5, 2013);
--'National Ratings Criteria' (Jan. 19, 2011).
Applicable Criteria and Related Research:
Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage
National Ratings Criteria