Fitch: Coca-Cola's Ratings Unaffected by Agreement With Monster

CHICAGO--()--Ratings for The Coca-Cola Company (Coca-Cola: IDRs 'A+/F1') are unaffected by the firm's pending $2.15 billion net cash investment in Monster Beverage Corporation (Monster: Not Rated), according to Fitch Ratings. A full list of Coca-Cola's ratings is at the end of the press release.

Yesterday, Coca-Cola and Monster announced a long-term strategic partnership intended to accelerate growth in the global energy drink category for both companies. The agreement, which utilizes Coca-Cola's global distribution capabilities and Monster's expertise in energy, consists of four parts as discussed below. The transaction, which is subject to regulatory approvals, is expected to close in late 2014 or early 2015.

The definitive agreements entail Coca-Cola purchasing a 16.7% equity stake in Monster and becoming Monster's preferred distribution partner globally. Additionally, Coca-Cola will swap its global energy portfolio for Monster's non-energy business. Coca-Cola's energy brands consist of NOS, Full Throttle, Burn, Mother, Play and Power Play, and Relentless while Monster's non-energy business includes Hansen's Natural Soda's and Juice Products, Peace Tea, and Hubert's Lemonade. Coca-Cola's energy sales were approximately $330 million in 2013 while sales for Monster's non-core products totaled $115 million.

Fitch views Coca-Cola's investment as relatively low risk, despite health concerns surrounding energy drinks, and expects any impact on leverage and liquidity to be minimal. Furthermore, Fitch believes the transaction may be accretive to Coca-Cola's earnings beyond its pending 16.7% proportional share of Monster. Monster's net income totaled approximately $339 million in 2013, up from $63 million in 2008.

Coca-Cola has an established relationship with Monster, as the parties' have had a U.S. distribution agreement in place since 2008, and will be entitled to two seats on Monster's Board of Directors. Moreover, the firm's minority investment limits the impact of potential future litigation or regulatory risk associated with its exposure to energy.

Longer-term benefits should accrue to both firms given Coca-Cola's vast global distribution capabilities and Monster's No. 2 market position in U.S. energy drinks. Energy drink volumes increased 7.8% in the U.S. during the first quarter of 2014, with Monster's name-sake brand's dollar share rising 10.7% to 32.9%, while CSD category volumes have experienced low single-digit declines annual in the U.S. since 2005, according to Beverage Digest.

For the latest 12 months (LTM) period ended June 27, 2014, total debt-to-EBITDA was 3.0x and the liquidity consisted of $21.6 billion of cash and short-term marketable securities. During the six-month period ended June 27, 2014, consolidated net operating revenue excluding the negative effects of currency and structural changes grew 3%. Concentrate volumes rose 1% while price/mix contributed 2%. Operating income increased 6% excluding the impacts of currency and structural changes. Coca-Cola's first half 2014 performance was in line with Fitch's expectations.

Fitch currently rates The Coca-Cola Company (Coca-Cola) and its subsidiaries as follows:

The Coca-Cola Company

--Long-term Issuer Default Rating (IDR) at 'A+';

--Bank credit facilities at 'A+';

--Senior unsecured debt at 'A+';

--Short-term IDR at 'F1';

--Commercial paper (CP) at 'F1'.

Coca-Cola Refreshments USA, Inc. and Coca-Cola Refreshments Canada, Ltd. (CCR)

--Long-term IDR at 'A+';

--Senior unsecured debt at 'A+';

--Senior shelf at 'A+'.

The Rating Outlook is Negative. Coca-Cola had approximately $40.2 billion of debt, inclusive of $17.3 billion of commercial paper, at June 27, 2014.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (May 2014);

--'Parent and Subsidiary Rating Linkage' (August 2013).

Applicable Criteria and Related Research:

Parent and Subsidiary Rating Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685552

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

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Contacts

Fitch Ratings
Primary Analyst
William Densmore, +1 312-368-3125
Senior Director
Fitch Ratings, Inc.
70 W. Madison St.
Chicago, IL 60602
or
Carla Norfleet Taylor, CFA, +1 312-368-3195
Secondary Analyst
Director
or
Committee Chairperson
Michael Weaver, +1 312-368-3156
Managing Director
or
Media Relations:
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
William Densmore, +1 312-368-3125
Senior Director
Fitch Ratings, Inc.
70 W. Madison St.
Chicago, IL 60602
or
Carla Norfleet Taylor, CFA, +1 312-368-3195
Secondary Analyst
Director
or
Committee Chairperson
Michael Weaver, +1 312-368-3156
Managing Director
or
Media Relations:
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com