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The Coca-Cola Co.'s Proposed Senior Unsecured Notes Rated 'A+'
  • 04-Sep-2019 10:07 EDT
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CHICAGO (S&P Global Ratings) Sept. 4, 2019--S&P Global Ratings today assigned its 'A+' issue-level rating to Atlanta-based The Coca-Cola Co.'s (Coke) proposed senior unsecured notes due in 2024 and 2029. The company is drawing these notes under its shelf registration dated May 22, 2017.

Net proceeds will be used for general corporate purposes, including debt repayment, though initially the net proceeds may be invested in short-term marketable securities.

The company's business strength is underpinned by its very strong position as the world's largest nonalcoholic beverage company, anchored by well-known brands, good innovation and portfolio mix management, and above-average EBITDA margins. We believe this clearly outweighs Coke's narrow focus on nonalcoholic ready-to-drink beverages.

Coke's financial flexibility over the next year is tight because of merger and acquisition activity and a large dividend. Its $5.1 billion acquisition of coffee company Costa Ltd., which closed on Jan. 3, 2019, will result in leverage above its 2x-2.5x target range until 2020. Its dividend payout (well over 80%) is one of the highest in the beverage industry. Coke typically increases its dividend by a low- to mid-single–digit percentage rate every year, a trend equity investors have come to expect. Still, annual discretionary flow generation should improve by 2020 and enable Coke to approach the top end of its target leverage range by then.
 
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