Fitch Rates Kellogg's $500MM Notes 'A-'; Outlook Stable.Fitch Ratings Fitch Ratings
An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. has assigned an 'A-' rating to Kellogg Company's (Kellogg) $500 million 4.15% senior unsecured notes due Nov. 15, 2019. The Rating Outlook is Stable. Total debt on Oct. 3, 2009 was $5.3 billion, including $433 million of commercial paper (CP).
Kellogg's ratings are as follows:
--Long-term Issuer Default Rating (IDR IDR
In currencies, this is the abbreviation for the Indonesian Rupiah.
The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. ) 'A-';
--Senior unsecured debt Unsecured debt
Debt that does not identify specific assets that the debtholder is entitled to in case of default. 'A-';
--Bank credit facility 'A-';
--Short-term IDR 'F2';
Kellogg Europe Company Limited
--Long-term IDR 'A-';
--Short-term IDR 'F2';
Kellogg Holding Company Limited
--Long-term IDR 'A-';
--Short-term IDR 'F2';
The company intends to use the net proceeds from this debt issuance, plus cash and CP, if necessary, to fund its previously announced tender offer of up to $500 million of 6.6% notes due in 2011. Any remaining net proceeds will be used for general corporate purposes. The new notes contain Change of Control Repurchase Event language. Upon the occurrence of both a Change of Control and ratings downgrades below investment grade, unless Kellogg exercises its right to redeem the notes, the company will be required to make an offer to purchase the notes at a price equal to 101% of the aggregate principal amount plus accrued and unpaid interest. The notes will be issued under Kellogg's indenture dated May 21, 2009, which contains limitations on liens and sale-leasebacks but does not contain financial covenants.
Kellogg's ratings incorporate its leading market share positions, strong brand equity and solid top-line and operating earnings growth on a currency-neutral basis. The ratings are also supported by the company's clear and balanced financial strategy, as well as its significant liquidity and high margins for the industry. Approximately half of Kellogg's sales are in the cereal category, and this product concentration is also reflected in the ratings. Kellogg's liquidity includes $527 million of cash and cash equivalents and its committed unsecured credit facility expiring in November 2011 with no borrowings. This credit facility allows the company to borrow up to $2 billion and obtain $75 million letters of credit. This facility contains covenants that restrict subsidiary indebtedness, liens and sale-leasebacks, and requires an interest coverage ratio of not less than 4.0:1.0. Kellogg's next material long-term debt maturity is the remainder of its $1.4 billion 6.6% notes due in April 2011 that have not been successfully tendered.
Year-to date net sales through Oct 3, 2009 fell 2.2% to $9.7 billion, primarily due to a negative impact from foreign currency. Since nearly 40% of Kellogg's sales are from outside the U.S., the U.S. dollar's strength versus foreign currencies has reduced sales growth. Internally generated net sales rose 3.3%, based on a 0.5% decline in volume offset by a 3.8% improvement from price/mix. Sales growth for packaged food companies has decelerated in recent periods as the positive impact of recent pricing actions has waned and volume has weakened. Nonetheless, Kellogg has improved its free cash flow (after capital expenditures and dividends) generation with the benefit from cost savings initiatives and more benign input cost inflation. Free cash flow was $575 million year-to-date, compared to $528 million in the first nine months of 2008. For the year Fitch anticipates the company's free cash flow to be approximately $650 million. Kellogg resumed share repurchases in the third quarter of 2009, engaging in $187 million of share repurchases year-to-date. The company plans to roll over any unused portion of its $650 million authorization to 2010. Kellogg also has a $650 million share repurchase authorization for 2010.
The company's total cost pressure has moderated significantly and is currently expected to rise 3% in 2009, and another 3% in 2010, versus heightened inflation of 10% in 2008. Total debt-to-operating EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become was 2.2 times (x) for the last 12 months ended Oct. 3, 2009; operating EBITDA to gross interest expense was 8.5x, and funds from operations Funds From Operations (FFO)
Used by real estate and other investment trusts to define the cash flow from trust operations; earnings with depreciation and amortization added back. (FFO FFO
See: Funds from operations ) adjusted leverage was 4.1x. Fitch anticipates that Kellogg will execute share repurchases and engage in bolt-on acquisitions prudently in order to maintain credit metrics within the 'A-' level.
Additional information is available at 'www.fitchratings.com'.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP HTTP
in full HyperText Transfer Protocol
In many cases, terms of service are used as a contractual agreement between a company and users of a service they provide. OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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 Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.
|Printer friendly Cite/link Email Feedback|
|Date:||Nov 16, 2009|
|Previous Article:||BestWeek Asia/Pacific: A.M. Best Examines Financial Crisis Impact on Region's Markets.|
|Next Article:||Enzon to Present Data at EORTC-NCI-AACR.|