Fitch Affirms Constellation Brands after Acquisition Announcement; Outlook Stable.

NEW YORK -- Fitch has affirmed the following ratings on Constellation Brands, Inc. (NYSE:STZ) after the company announced a definitive agreement to acquire Vincor International Inc. (Vincor):

-- Issuer Default Rating (IDR) 'BB';

-- Bank credit facilities 'BB';

-- Senior unsecured notes 'BB';

-- Senior subordinated notes 'BB-'.

The Rating Outlook is Stable. Approximately $4.2 billion in aggregate debt (including debt related to the Vincor acquisition) is covered by these actions.

STZ has a leading market position and broad portfolio of wine, beer and spirits in diversified markets. The company has pursued a strategy of growth through acquisitions financed primarily through debt. The Vincor acquisition is valued at approximately $1.3 billion including assumption of debt, and will be financed entirely with new debt. The transaction is expected to benefit from STZ's significant global distribution capability and scale, revenue and cost synergies, and add Canada as a new core market for the company in addition to the US, UK, Australia and New Zealand.

STZ has an excellent track record of integrating acquisitions and the company has, at the same time, applied cash flow to support capital spending and debt paydown. Recent major acquisitions include BRL Hardy Ltd. (BRL Hardy) for $1,400 million in 2003 and Robert Mondavi Corp. (Robert Mondavi) for $1,355 million in 2004. The acquisition multiple of around 13 times (x) EBITDA for Vincor is similar to the 12.5x last twelve months (LTM) EBITDA paid for Robert Mondavi. However, total debt has increased as a result of successive acquisitions, with a significant increase in interest expense. In the past, STZ has been very successful at finding synergies and paying down debt with its strong cash flow generating assets.

It must be noted that the acquisition of Vincor comes at a time when STZ is highly leveraged and has yet to demonstrate meaningful debt reduction following the Robert Mondavi debt financed acquisition in late 2004. There is no cushion within the current rating level, thus extraneous uses of free cash flow or any meaningful increase in the leverage ratio will have rating implications.

The Stable Outlook reflects management's commitment to paying down debt and a history of successfully integrating acquisitions. In addition to high leverage, other concerns are the recent pace of debt-financed acquisitions, beer contract uncertainty and concentrated share voting control.

Using LTM results and the expectation of some debt paydown in the fiscal fourth quarter, total debt/operating EBITDA and EBITDA interest coverage are expected to approximate 4.3 - 4.5x and 3.4 - 3.6x, respectively, pro forma for the Vincor acquisition.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.