Aug 6 - Standard & Poor's Ratings Services assigned its 'BB+' issue-level
and '3' recovery ratings to Constellation Brands Inc.'s proposed $650
million senior unsecured notes due 2023. The '3' recovery rating indicates our
expectation of meaningful recovery (50%-70%) in the event of payment default.
The notes will be issued under the company's Rule 415 shelf registration.
Constellation Brands has indicated that it plans to use the net proceeds from
this offering to partially pre-fund its pending acquisition of the remaining 50%
interest in Crown Imports LLC (not rated). The proceeds from the offering will
be held in escrow until the proposed acquisition is completed, assuming it's
completed as currently described. As such, we will net the cash held in escrow
against debt in the interim until the acquisition is completed.
Our corporate credit rating on Constellation Brands reflects our assessment of
the company's "satisfactory" business risk profile and "significant" financial
risk profile. Key credit factors considered in our business risk assessment
include the company's diverse portfolio of consumer brands and historically
strong cash generation in the highly competitive beverage alcohol markets, yet
relatively narrow business and geographic focus. Our financial risk profile
incorporates Constellation Brands' moderate financial policy, adequate
liquidity, and key credit measures that we believe will remain within or near
indicative ratio ranges for a significant financial profile, including
leverage (as measured by total debt to EBITDA) of 3x-4x. Pro forma for the
proposed Crown transaction, we estimate key credit ratios (including our
standard adjustments) will weaken from fiscal 2012 year-end levels.
Specifically, in our view, total debt to EBITDA will be 4.6x but will improve
to near 4x within one year of closing of the Crown transaction because we
expect that Constellation Brands will forego shareholder-friendly initiatives
and apply discretionary cash flow to debt in the intermediate term.
RELATED CRITERIA AND RESEARCH
-- Methodology And Assumptions: Liquidity Descriptors For Global
Corporate Issuers, Sept. 28, 2011
-- Key Credit Factors: Criteria For Rating The Global Branded Nondurable
Consumer Products Industry, April 28, 2011
-- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded,
May 27, 2009
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
Constellation Brands Inc.
Corporate Credit Rating BB+/Stable/--
Constellation Brands Inc.
$650 mil. sr unsecd notes due 2023 BB+
Recovery Rating 3
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