TEXT-S&P affirms Heineken 'BBB+/A-2' ratings; outlook stable

(The following statement was released by the rating agency)

Oct 02 -

Overview

-- Netherlands-based group Heineken N.V. announced on Sept. 28, 2012,

that shareholders of its joint-venture partner Fraser & Neave had approved

Heineken's offer to acquire Fraser & Neave's interests in Asia Pacific

Breweries Ltd.

-- We are affirming our 'BBB+/A-2' long- and short-term ratings on

Heineken and removing them from CreditWatch negative.

-- The stable outlook reflects our view that Heineken will restore ratios

of funds from operations to net debt and adjusted debt to EBITDA, including

Standard & Poor's adjustments, of 25% and 3.0x, respectively, within 24

months.

Rating Action

On Oct. 2, 2012, Standard & Poor's Ratings Services affirmed its 'BBB+/A-2'

long- and short-term corporate credit ratings on Netherlands-based brewer

Heineken N.V. At the same time, we removed the ratings from CreditWatch, where

we had placed them with negative implications on July 25, 2012. The outlook is

stable.

Rationale

The affirmation reflects our assessment that Heineken's credit metrics, pro

forma for the acquisition of Asia Pacific Breweries Ltd. (APB), will only

temporarily and moderately deviate from our guidance for the rating and

quickly recover thereafter. Heineken announced on Sept. 28, 2012, that

shareholders of its joint-venture partner Fraser & Neave had approved

Heineken's offer to acquire Fraser & Neave's interests in APB. We expect funds

from operations (FFO) to net debt and debt to EBITDA, including our

adjustments, of 25% and 3.0x respectively, within 24 months of closing of the

mandatory general offer (MGO) that Heineken will have to launch on the

remaining shares. The affirmation also factors in Heineken's track record of

deleveraging post acquisition, as evidenced by the Scottish & Newcastle deal,

and commitment to strong investment-grade credit ratings, with a commitment to

return to a ratio of net debt to EBITDA (before exceptional items and

amortization of brands and customer relations) of less than 2.5x within 24

months of the MGO.

We expect Heineken's adjusted debt-to-EBITDA ratio to reach 3.5x and adjusted

FFO to debt to decrease to about 22.5% at year-end 2012, following the

completion of APB's acquisition for a total consideration of EUR5.2 billion by

our estimate, considering full subscription of the MGO. However, with a

base-case scenario assuming mid-single-digit revenue growth, flat margins, and

higher capital expenditure (capex) in 2013, our projections show Heineken's

cash flow generation will remain strong. We expect annual FFO of about EUR3

billion, and free cash flow in excess of EUR1.5 billion annually over the next

two years. We thus estimate Heineken's adjusted debt-to-EBITDA and adjusted

FFO-to-debt ratio will be above 25% and below 3.0x, respectively, in 2014,

with a significant improvement already in 2013. Our base case does not assume

any significant acquisitions or share buybacks, but includes an annual

dividend payment of more than EUR600 million.

We believe the acquisition will further support Heineken's "strong" business

risk profile. We view the transaction as low-risk, given that Heineken manages

APB and has been one of its major shareholders for more than 80 years. APB

operates 25 breweries in 14 countries across Asia and the Pacific Islands with

leading brands such as Tiger and Anchor, and the Heineken brand under license.

We therefore think the consolidation of the Asian company will be another step

toward diversifying Heineken's geographic footprint, and increase access to

emerging markets' strong growth prospects.

Liquidity

At this stage, we view liquidity as "adequate," as our criteria define this

term.

Financing of the acquisition is already secured through, as of Sept. 30, 2012,

EUR1 billion of cash available, EUR2 billion of undrawn committed facilities, and

a new bridge commitment of EUR2.5 billion. Moreover, we acknowledge Heineken's

proven ability to tap the bond market and expect a rapid refinancing of the

bridge commitment. Also, we assume still substantial discretionary cash flow

of about EUR1 billion in 2013.

Regarding uses, we expect capex of EUR1.2 billion in 2012, and an annual

dividend payment of more than EUR600 million. We also factor in uses of EUR5.2

billion for the acquisition of APB. As at June 30, 2012, short-term debt was

EUR351 million, and debt due in 2013 was EUR1.3 billion.

Outlook

The stable outlook reflects the predictability of Heineken's operations, and

its strong and proven deleveraging abilities. It factors in our expectations

that the group's adjusted FFO to net debt will recover to the 25%-35% corridor

and that adjusted debt to EBITDA will decrease below 3.0x in 2014, with

already a significant improvement from year-end 2013.

Our base case assumes sales growth in the mid-single digits in the coming

years and still sizable free cash flows despite higher capex. It does not

incorporate any additional significant acquisitions. We could consider

lowering the ratings if the company does not meet our deleveraging

expectations in the expected timeframe.

The ratings have limited upside in the next 24 months as improvement of credit

metrics will be gradual, in our view. We could consider raising the ratings if

the company were to commit to a stricter financial policy, and notably

sustainably report an adjusted debt-to-EBITDA ratio of below 2.5x.

Related Criteria And Research

-- Methodology: Short-Term/Long-Term Ratings Linkage Criteria For

Corporate And Sovereign Issuers, May 15, 2012

-- Key Credit Factors: Criteria For Rating The Global Branded Nondurable

Consumer Products Industry, April 28, 2011

-- Methodology And Assumptions: Liquidity Descriptors For Global

Corporate Issuers, Sept. 28, 2011

-- Methodology: Business Risk/Financial Risk Matrix Expanded, Sept. 18,

2012

-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008

-- 2008 Corporate Criteria: Ratios And Adjustments, April 15, 2008

Ratings List

Ratings Affirmed; CreditWatch/Outlook Action

To From

Heineken N.V.

Corporate Credit Rating BBB+/Stable/A-2 BBB+/Watch Neg/A-2

Senior Unsecured BBB+ BBB+/Watch Neg

Source: http://news.yahoo.com/text-p-affirms-heineken-bbb-2-ratings-outlook-091738691--sector.html

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