Fitch Affirms Coca-Cola Femsa's (KOF) Credit Ratings

CHICAGO--(BUSINESS WIRE)--Fitch 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 Issuer Default Rating (IDR) at 'A-';

--National Scale Long Term Rating at 'AAA(mex)';

--National Scale Short Term Rating at 'F1+(mex)';

--Local Certificados Bursatiles at 'AAA(mex)';

--Corporacion Interamericana de Bebidas S.A. de C.V. Foreign Currency IDR at 'A-';

--Corporacion Interamericana de Bebidas S.A. de C.V. Local Currency IDR at 'A-';

--Bond due 2009 (Corporacion Interamericana de Bebidas, S.A. de C.V.)

The Rating Outlook is Stable.

The ratings reflect KOF's strong free cash flow generating capacity, solid financial profile and excellent business position. The ratings also factor in the company's strategic relationship with The Coca-Cola Company (KO) and the explicit and implicit financial support KOF has received from KO.

For the last 12 months (LTM) ended March 31, 2008, Coca-Cola Femsa generated US$1.417 billion of EBITDA and US$804 million of funds from operations (FFO). These figures compare with US$1.354 billion of EBITDA and US$899 million of FFO during 2007. As of March 31, 2008, KOF had US$1.7 billion of debt and $714 million of cash and marketable securities.

Due to the growth in cash flow, KOF's interest coverage, as measured by FFO to interest expense, improved to 5.3 times (x) as of March 31, 2008 from 5x at December 2006. During this time period, leverage, as measured by total debt-to- FFO, has declined to 1.7x from 1.8x. Further improvement in financial indicators is expected to occur as the company continues to repay debt with internally generated cash.

KOF has experienced some cost pressures over the past year and a tight pricing environment in its main market, Mexico. Profitability margins on a consolidated basis have remained relatively stable, however, due to an improvement in the company's operations outside of Mexico. These operations represented 43% of the company's EBITDA in 2007, an increase from 38% in 2006.

The company's debt profile is well-balanced between dollar- and peso-denominated debt. As of March 31, 2008, KOF had 41% of its total debt denominated in U.S. dollars, 56% denominated in Mexican pesos, and the rest in Argentine pesos. Given that the company generates close to 60% of its EBITDA in Mexican pesos, the peso-denominated debt eliminates a good portion of currency fluctuation risk. The company has 66% of its debt at fixed rates and 34% at floating, with an average cost of debt of 7.4%.

Liquidity risk is manageable for Coca-Cola Femsa. As of March 31, 2008, only 20% of Coca-Cola Femsa's debt was short term. The most significant portion of upcoming maturities are Certificados Bursatiles (CBs) issued in the local market of US$120 million in April 2008 and US$230 million in July 2008. The company repaid the US$120 million bond with available cash during April and plans to do the same with its CB maturing in July. With maturities no higher than US$390 million in a given year, KOF's future amortization schedule remains manageable.

KOF's main activity is the production, distribution and marketing of Coca-Cola products in its franchise territories. The company is one of the Coca-Cola Company's main bottlers globally. With sales of over 2.1 billion unit cases (UC) per year, KOF is the largest Coca-Cola bottler in Mexico and Latin America, and second largest in the world in terms of sales volume. Currently KOF represents 10% of total worldwide volumes in the Coke system, 35% of Latin America, 40% of Mexico and 29% of Brazil. The company continues to use its cash flow to expand its reach and beverage portfolio. Recent acquisitions include Jugos del Valle, a leading manufacturer of juice products in Mexico and the proposed purchase of Remil, a bottler of Coca-Cola products in Brazil. The Remil transaction is expected to close later this year. KOF is controlled by FEMSA through its 53.7% stake. The second largest shareholder in KOF is The Coca-Cola Company with a 31.6% ownership stake.

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