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TEXT-S&P raises Cerveceria Nacional Dominicana S.A. ratings
July 9, 2012 / 6:47 PM / 5 years ago

TEXT-S&P raises Cerveceria Nacional Dominicana S.A. ratings

(The following statement was released by the rating agency)

     -- On May 11, AmBev's purchase of Dominican Republic-based beer and malt 
producer and distributor CND was completed.
     -- We are raising the rating CND to 'BB' from 'B+' and removing it from 
CreditWatch with positive implications.
     -- The stable outlook reflects our view that AmBev's strong implicit and 
explicit support to CND will remain in the future.

Rating Action
On July 9, 2012, Standard & Poor's Ratings Services raised its rating on 
Cerveceria Nacional Dominicana S.A. (CND) to 'BB' from 'B+', two notches above 
the sovereign rating on the Dominican Republic. In addition, we removed the 
rating from CreditWatch with positive implications, where we placed it on 
April 17, 2012. The outlook is stable.

The rating action reflects the completion of AmBev - Companhia de Bebidas das 
Americas' acquisition of 51% of CND, which was announced on April 16. We 
believe CND is a strategically important investment for AmBev and we have 
incorporated two notches of support from AmBev to our corporate credit rating 
on CND. Through this transaction, Ambev will become the biggest beverage 
company in the Caribbean, and we believe its operation in this region will be 
highly strategic for the company. We expect AmBev to provide strong implicit 
and explicit support to CND, even in a default case scenario of the Dominican 
Republic. This support is evident through the recent redemption of CND's 
senior unsecured notes due 2014, which the company will refinance at a lower 
interest rate through a bank loan that AmBev will guarantee. We consider the 
company's business risk profile as "weak" and its financial risk profile as 

Additionally, we expect that CND will benefit from synergies, integration of 
logistics and commercial agreements, economies of scale in raw material 
sourcing and distribution, and further expansion of its brands to other 

During the first three months of 2012, CND has continued to improve its 
financial metrics through debt reduction and refinancing, as well as an 
improvement of its EBITDA margins, thanks to a better product mix and higher 
sales volumes, mainly exports. For the 12 months ended March 31, 2012, CND 
posted an EBITDA margin of 29%, total debt to EBITDA of 2.3x, funds from 
operations (FFO) to total debt of 29.5%, and EBITDA interest coverage of 3.4x, 
compared with 26.1%, 3.2x, 19%, and 2.6x for the same period in 2011. 

Under our base-case scenario, CND's revenues will increase 5% and EBITDA 
margins to 35% by 2015, due to the expected synergies and cost reductions from 
the AmBev's purchase. These figures will improve the company's key financial 
metrics: debt to EBITDA of 2.1x, FFO to debt of 25.1%, and EBITDA interest 
coverage of 5.3x by the end of 2012. Free operating cash flow is expected to 
remain positive, at about Dominican peso (DOP) 2.0 billion.

Our ratings on CND reflect our view of the country and macroeconomic risk of 
the Dominican Republic, the company's exposure to the country's economic 
cycles, and certain foreign-currency exposure related to its 
dollar-denominated debt, as most of its revenues are denominated in Dominican 
pesos. The somewhat offsetting factors are the strong explicit and implicit 
support from AmBev, CND's leading industry position in the Caribbean, its 
strong distribution capabilities in a fragmented retailer system, solid and 
longstanding brand recognition, the improving acceptance of its products in 
international markets, and adequate liquidity. 

We consider CND's liquidity to be "adequate" under our criteria. During the 
past 12 months, CND substantially improved its debt maturity profile through 
the refinancing of short-term liabilities and reduction of debt. For the 
following 12 months ending March 31, 2013, sources of liquidity will likely 
include cash of DOP1.121 billion and FFO of about DOP3.630 billion. Cash uses 
are likely to include DOP1.784 billion in short-term debt maturities and 
approximately DOP1.763 billion for working capital requirements, capital 
expenditures, and dividend payments. 

We expect sources of liquidity to exceed uses by 1.4x for 2012 and 1.7x for 
2013, and net sources to remain positive even with a 15%-20% decline in 
EBITDA. Given the company's improved financial metrics, its covenant headroom 
has widened. We anticipate this comfortable buffer to remain in the next two 
years with a cushion of more than 50%.

The stable outlook reflects our view that AmBev's strong support to CND will 
allow it to improve its profitability and reduce its financing and operating 
costs. We could lower the rating if this support does not continue, if we 
downgrade the Dominican Republic, and although highly unlikely, if the 
company's financial risk profile significantly weakens. Our view of country 
risk and the current transfer and convertibility assessment of the Dominican 
Republic constrains an upgrade.

Related Criteria And Research
     -- Methodology And Assumptions: Liquidity Descriptors For Global 
Corporate Issuers, Sept. 28, 2011
     -- Credit FAQ: Understanding Ratings Above The Sovereign, Aug. 8, 2011
     -- Key Credit Factors: Criteria For Rating The Global Branded Nondurable 
Consumer Products Industry, April 28, 2011
     -- Business Risk/Financial Risk Matrix Expanded, May 27, 2009
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
     -- Corporate Criteria--Parent/Subsidiary Links; General Principles; 
Subsidiaries/Joint Ventures/Nonrecourse Projects; Finance Subsidiaries; Rating 
Link to Parent, Oct. 28, 2004

Ratings List
Upgraded; CreditWatch/Outlook Action
                                        To                 From
Cerveceria Nacional Dominicana S.A.
 Corporate Credit Rating                BB/Stable/--       B+/Watch Pos/--
 Senior Unsecured                       BB                 B+/Watch Pos

 (Caryn Trokie, New York Ratings Unit)

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