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TEXT-S&P upgrades Foster's Group to 'BBB+'
April 5, 2012 / 4:37 PM / 6 years ago

TEXT-S&P upgrades Foster's Group to 'BBB+'

April 5 - Overview	
     -- In December 2011, Australian brewer and distributor Foster's Group 	
Ltd. (Foster's) was acquired by global brewer SABMiller PLC.	
     -- In our view, SABMiller has a strong economic incentive to support 	
Foster's and we consider that Foster's stand-alone credit quality has modestly 	
improved following the takeover. This supports an equalization of our ratings 	
on Foster's with those on SABMiller.	
     -- We are therefore raising our long-term corporate credit and issue 	
ratings on Foster's to 'BBB+' from 'BBB' and removing them from CreditWatch 	
positive. 	
     -- The stable outlook on Foster's reflects that on its 100% owner, 	
SABMiller.	
	
Rating Action	
On April 5, 2012, Standard & Poor's Ratings Services raised its long-term 	
corporate credit and issue ratings on Australian brewer and distributor 	
Foster's Group Ltd. (Foster's) to 'BBB+' from 'BBB'. At the same time, we 	
removed the ratings from CreditWatch, where they were placed with positive 	
implications on Sept. 21, 2011. In addition, we affirmed our 'A-2' short-term 	
rating on Foster's. The outlook is stable. 	
	
Rationale	
The upgrade follows the acquisition of Foster's by global brewer SABMiller PLC 	
(BBB+/Stable/A-2). The upgrade is the result of us equalizing our ratings on 	
Foster's with those on SABMiller to reflect our view of SABMiller's strong 	
economic incentive to support Foster's, as well as the benefits that we 	
believe SABMiller's ownership will have for Foster's stand-alone credit 	
profile (SACP). 	
	
In our view, SABMiller has a strong economic incentive to support Foster's 	
because any material default by Foster's is likely to trigger a default of the 	
rest of SABMiller's debt facilities. We base this assumption on our 	
understanding that Foster's will be defined as a Principal Subsidiary under 	
SABMiller's debt facilities. Furthermore, we consider that the size of the 	
Foster's acquisition--which represents 15%-20% of SABMiller's consolidated 	
EBITDA--and the degree of integration between the two companies also support 	
our decision to equalize the ratings. 	
	
Our view that Foster's SACP will benefit from SABMiller's ownership primarily 	
reflects our opinion that Foster's will manage its leverage in a manner 	
consistent with an "intermediate" financial risk profile. We also believe that 	
Foster's will benefit from the strong position of SABMiller's brands, which 	
should more than offset the loss of third-party brands following the takeover. 	
In addition, Foster's will benefit from access to SABMiller's supply chain and 	
marketing and development capabilities. 	
	
The ratings on Foster's reflect our opinion of the high likelihood of support 	
from its 100% owner, SABMiller. The ratings also reflect Foster's "strong" 	
stand-alone business risk profile, which is underpinned by the group's strong 	
position in the Australian brewing market, its diverse brand portfolio, high 	
operating margins, and significant free cash flow generation. These factors 	
mitigate the risks associated with the growing market power of the major 	
liquor retailers, regulatory risks (including taxation and marketing 	
restrictions), and the ongoing fragmentation of brewing demand.	
	
Liquidity	
We assess Foster's liquidity as "adequate" under our criteria, reflecting our 	
liquidity assessment on SABMiller. 	
	
SABMiller's 'A-2' short-term rating reflects our opinion that over the short 	
term, the group should maintain ample internal liquidity, good cash flow 	
characteristics, and significant access to the capital markets. SABMiller's 	
sources of liquidity cover its uses by more than 1.2x. We estimate that 	
SABMiller's liquidity sources over the next 12 months consist of:	
     -- A cash balance of $953 million at the end of September 2011;	
     -- An undrawn $2.5 billion committed credit facility maturing in 2016 and 	
carrying the option of two one-year extensions; and 	
     -- Funds from operations of about $4.5 billion. 	
We estimate that SABMiller's liquidity uses over the next 12 months consist of:	
     -- Short-term debt of $1.1 billion at the end of September 2011;	
     -- Capital expenditures of about $1.7 billion; and	
     -- Dividend payments of about $1.5 billion.	
In addition, we consider that the following factors support SABMiller's 	
"adequate" liquidity profile:	
     -- Good access to capital markets. In January 2012, SABMiller 	
successfully refinanced $7 billion of the bank debt it assumed to acquire 	
Foster's in the U.S. bond market. This was across 2015, 2017, 2022, and 2042 	
maturity bonds, which priced at 150 basis points, 165 basis points, 185 basis 	
points, and 200 basis points yield spread to the benchmark treasury, 	
respectively.	
     -- The bank facilities' single covenant, under which SABMiller operates 	
with significant headroom.	
     -- The absence of downward rating triggers that would accelerate the 	
maturity of a material amount of debt.	
	
Outlook 	
The stable outlook on Foster's reflects that on its 100% owner, SABMiller. The 	
equalization of the ratings on Foster's with those on SABMiller means that 	
they will move in tandem from now on. 	
	
Upward rating pressure would therefore depend on us upgrading SABMiller.	
	
Downward rating pressure could arise if the rating on SABMiller came under 	
pressure and/or if we considered there to be a reduced likelihood of parental 	
support from SABMiller at a time of a material deterioration in Foster's SACP. 	
Such deterioration could follow a material decline in Foster's market 	
position, including its revenue share of the Australian brewing market falling 	
to materially less than 45% on a sustained basis. 	
Related Criteria And Research	
All articles listed below are available on RatingsDirect on the Global Credit 	
Portal, unless otherwise stated.	
     -- Key Credit Factors: Criteria For Rating The Global Branded Nondurable 	
Consumer Products Industry, April 28, 2011	
     -- Corporate Criteria--Parent/Subsidiary Links; General Principles; 	
Subsidiaries/Joint Ventures/Nonrecourse Projects; Finance Subsidiaries; Rating 	
Link to Parent, Oct. 28, 2004	
	
Ratings List	
Upgraded; CreditWatch/Outlook Action; Ratings Affirmed	
                                        To                 From	
Foster's Group Ltd.	
 Corporate Credit Rating                BBB+/Stable/A-2    BBB/Watch Pos/A-2	
	
FBG Finance Ltd.	
 Senior Unsecured Debt*                 BBB+               BBB/Watch Pos	
	
FBG Treasury (Aust.) Ltd.	
 Senior Unsecured Debt*                 BBB+               BBB/Watch Pos	
	
Foster's Finance Corp.	
 Senior Unsecured Debt*                 BBB+               BBB/Watch Pos	
	
*Guaranteed by Foster's Group Ltd.	
	
	
	
Complete ratings information is available to subscribers of RatingsDirect on 	
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 	
by this rating action can be found on Standard & Poor's public Web site at 	
www.standardandpoors.com. Use the Ratings search box located in the left 	
column.

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