Moody's Puts Starbucks (SBUX) Ratings on Review for Upgrade
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Moody's Investors Service placed the ratings of Starbucks Corporation (Nasdaq: SBUX) on review for upgrade including its Baa2 senior unsecured rating and Prime-3 short term commercial paper rating. In addition, Moody's assigned a Baa2 rating to the company's proposed $750 million senior unsecured notes due 2023 and placed these ratings on review for upgrade.
Proceeds from the proposed note offering will be used for general corporate purposes which may include the payment of cash dividends, the repurchase of its common stock, or the financing of possible acquisitions or business expansion.
RATINGS RATIONALE
The review for upgrade considers the added liquidity from the proposed new note offering along with Starbucks continued improvement in earnings and cash flows. Combined, Moody's believes these two factors will help mitigate the financial liability related to the company's binding arbitration with Kraft enough to support a higher rating, even though the exact amount of the financial liability has not yet been determined. In regards to the pending binding arbitration, Starbucks claims damages of up to $62.9 million while Kraft claims damages of up to $2.9 billion, plus attorney fees.
Completion of the offering along with confirmation of the company's willingness to maintain credit metrics and financial policy consistent with a higher rating is expected to result in an upgrade of the company's senior unsecured rating and its commercial paper rating. Any upgrade is not necessarily dependent on final resolution of the binding arbitration.
The arbitration was the result of Starbucks ending its agreement with Kraft that covered the distribution of Starbucks products into supermarkets, and other third party outlets. In the agreement, one of the remedies calls for Starbucks to pay Kraft the fair market value of the agreement plus up to a 35% premium under certain circumstances. The arbitration hearing commenced on July 11, 2012 and was completed on August 3, 2012, although the final outcome of the arbitration has not yet been determined.
New rating assigned and placed on review for upgrade:
- $750 million senior unsecured notes due 2023 rated Baa2
Existing ratings placed on review for upgrade:
- $550 million 6.25% senior unsecured notes due 2017 rated Baa2
- Short term commercial paper program rated P-3
Starbucks headquartered in Seattle WA, operates a chain of stores and channel development segment that offers premium coffee, tea, and complimentary products. The company has approximately 10,000 company-owned and in excess of 9,200 licensed stores. Annual revenues are over $14 billion.
The principal methodology used in this rating was Global Restaurant Methodology published in June 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
Proceeds from the proposed note offering will be used for general corporate purposes which may include the payment of cash dividends, the repurchase of its common stock, or the financing of possible acquisitions or business expansion.
RATINGS RATIONALE
The review for upgrade considers the added liquidity from the proposed new note offering along with Starbucks continued improvement in earnings and cash flows. Combined, Moody's believes these two factors will help mitigate the financial liability related to the company's binding arbitration with Kraft enough to support a higher rating, even though the exact amount of the financial liability has not yet been determined. In regards to the pending binding arbitration, Starbucks claims damages of up to $62.9 million while Kraft claims damages of up to $2.9 billion, plus attorney fees.
Completion of the offering along with confirmation of the company's willingness to maintain credit metrics and financial policy consistent with a higher rating is expected to result in an upgrade of the company's senior unsecured rating and its commercial paper rating. Any upgrade is not necessarily dependent on final resolution of the binding arbitration.
The arbitration was the result of Starbucks ending its agreement with Kraft that covered the distribution of Starbucks products into supermarkets, and other third party outlets. In the agreement, one of the remedies calls for Starbucks to pay Kraft the fair market value of the agreement plus up to a 35% premium under certain circumstances. The arbitration hearing commenced on July 11, 2012 and was completed on August 3, 2012, although the final outcome of the arbitration has not yet been determined.
New rating assigned and placed on review for upgrade:
- $750 million senior unsecured notes due 2023 rated Baa2
Existing ratings placed on review for upgrade:
- $550 million 6.25% senior unsecured notes due 2017 rated Baa2
- Short term commercial paper program rated P-3
Starbucks headquartered in Seattle WA, operates a chain of stores and channel development segment that offers premium coffee, tea, and complimentary products. The company has approximately 10,000 company-owned and in excess of 9,200 licensed stores. Annual revenues are over $14 billion.
The principal methodology used in this rating was Global Restaurant Methodology published in June 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
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