Moody's Affirms Ratings on Coca-Cola Enterprises' (CCE) Unsecured Debt; Outlook is Stable

Moody's Investors Service confirmed the A3 rating on Coca-Cola Enterprises, Inc.'s (NYSE: CCE) outstanding senior unsecured debt. The confirmation follows the execution of downstream guarantees from Coca-Cola European Partners (CCEP, A3 stable). CCEP was formed through the May 2016 merger of CCE with Coke's Spanish and German bottlers. Moody's also withdrew CCE's short-term Prime-2 rating. The outlook is stable.

RATINGS CONFIRMED

Backed Senior Unsecured at A3

RATINGS WITHDRAWN

Short-term Prime-2 rating

OUTLOOK

Stable

RATINGS RATIONALE

The rating confirmation is based on upstream and downstream guarantees that make the debt at CCE Pari-Passu with the debt issued at CCEP. The guarantees provide for timely, full and unconditional payment of principle and interest on the CCE obligations.

Coca-Cola European Partners' A3/P-2 ratings reflects its position as the Coca-Cola System's largest independent bottler following the May 2016 merger between CCE, Coca-Cola Iberian Partners (CCIP) and Coca-Cola Erfrischungsgetränke (CCEG). CCEP serves many of The Coca-Cola Company's (Aa3 stable) most important European markets including Belgium, France, Great Britain, Germany, Spain, Portugal, Luxembourg, Monaco, the Netherlands, Norway and Sweden, where the Coca-Cola brand enjoys strong market positions. At the same time, the rating incorporates initially higher leverage -- approaching 4 times, integration challenges and a footprint that while broadened, still reflects a concentration in a number of developed European markets. CCEP's standalone rating is in the Baa range, but the importance of the bottler to KO provides one notch of ratings lift leading to the A3 senior unsecured rating.

CCEP's stable outlook reflects Moody's expectation that the integration will go smoothly and that CCEP will be able to increase its profitability and cash flow over time, allowing for debt reduction.

A ratings upgrade is unlikely in the near term given initially high leverage, integration risks, an improved but still relatively concentrated geographic footprint and the limitations on profitability that are inherent in the bottling business. However, over the longer term, ratings could be upgraded if CCEP achieves greater diversity and higher margins together with making a commitment to sustain leverage closer to the 2 times level.

A ratings downgrade could result from soft operating performance, shareholder friendly activities, or acquisitions that lead to a debt/EBITDA sustained materially higher than 3 times, or failure to reduce leverage to 3 times or below within 2 years of the merger.

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