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Fitch Affirms `BBB-` Rating Of Coca-Cola Embonor.

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Fitch affirms its `BBB-` foreign currency credit rating of Coca-Cola Embonor's (Embonor) senior unsecured notes due in 2006. In conjunction with this rating action, Fitch has changed the Rating Outlook from Positive to Stable.

The investment-grade rating of Embonor's notes reflects the strategic importance of the company to Coca-Cola. The rating also reflects the company's relatively strong business position in all of its bottling territories. The change in the Rating Outlook from Positive to Stable reflects credit-protection measures that are relatively weak for the rating category and an expectation that they will continue to be weak within the rating category until 2002. The Rating Outlook change also reflects the decreasing probability that Inca Kola and Embonor will merge in the near future.

Embonor is one of the most important bottlers for Coca-Cola in Latin America. The company accounts for approximately 38% of Coca-Cola sales in Chile and almost 100% of its sales in Bolivia and Peru. The company ended 2000 with market shares of 67%, 53%, and 33% respectively, in these markets.

Of the company's territories, Peru represents one of the greatest growth opportunities for Coca-Cola in Latin America. During 2000, Peruvians consumed approximately 60 Coca-Cola soft drinks per person, one of the lowest figures in Latin America. In an effort to build upon its leading position in the soft drink industry in Peru and to support Embonor, Coca-Cola made significant investments during 1998 and 1999 in the region, spending $284 million to increase its stake in Embonor from 8% to 44% and spending approximately $200 million for a strategic partnership with Inca Kola.

Embonor ended 2000 with an EBITDA-to-net interest expense ratio of 2.8 times (x) and a total debt-to-EBITDA ratio of 4.7x. The company's financial performance was hindered during 2000 by macroeconomic weakness and political uncertainty in Peru, a recession in Bolivia and a major increase in the tax on soft drinks in Bolivia that went into effect in January 2000, and was not rescinded until December 2000. Nevertheless, these ratios remain consistent with the `BBB-' rating category given Coca-Cola's significant stake in the company and Coke's history of directly and indirectly supporting its most strategic bottlers.

During 2001, Embonor's coverage ratios are expected to improve modestly due to major cost reduction efforts. These efforts led to a 17% increase in the company's EBITDA during the quarter ended March 31, 2001, despite a 5.5% decline in the company's sales volumes. In 2003, the company's EBITDA-to-net interest expense ratio is expected to be in the range of 4x and its total debt-to-EBITDA ratio is expected to fall to approximately 2.5x. The strengthening of these ratios is expected to be driven by macroeconomic improvements in all of the company's market and further reductions in costs per unit case.

Importantly, during 2000, Embonor paid off a $200 million senior secured loan with proceeds raised from a Chilean peso-denominated club loan and a peso-denominated local bond (the value of these borrowings was $200 million). As a result of these refinancings, the company's dollar- denominated debt was reduced from approximately 100% to less than 50%. In addition, the senior unsecured notes due in 2008 now rank pari passu with all of the company's debt.
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Publication:Business Wire
Date:Jul 10, 2001
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