Molson Coors Beverage Co. Outlook Revised To Negative From Stable; Ratings Affirmed

  • Molson Coors Beverage Co.'s operating performance will be pressured in 2020 as the company invests in innovation, executes on its revitalization plan, and possibly faces weaker sales because of the coronavirus pandemic.
  • We are affirming all our ratings on Molson Coors, including our 'BBB-' issuer credit rating and 'A-3' short-term and commercial paper ratings.
  • We are revising the outlook to negative from stable, reflecting our expectation that Molson Coors' credit metrics have less cushion to face prolonged sales and EBITDA declines. This increases the possibility of a negative rating action over the next year if sales materially deteriorate because of the evolving COVID-19 pandemic and the company does not prioritize debt repayment.
NEW YORK (S&P Global Ratings) March 27, 2020—S&P Global Ratings today took the rating actions listed above.
Molson Coors' leverage will remain on the higher end of our expectations for 2020 and could face further pressure.  The negative outlook reflects the heightened risk of weaker-than-anticipated operating performance this year because of the COVID-19 pandemic. We already expected 2020 to be a transition year, with EBITDA declining by about 9%-10% from higher costs associated with the company's revitalization plan, including moving the headquarters to Chicago, closing inefficient breweries, and driving premium product innovation. These actions are intended to provide run rate cost savings of about $600 million by 2022. However, Molson Coors faces a tough operating landscape that could offset the benefit of its cost-cutting initiatives and sustain leverage above our 4x trigger for a downgrade.
The negative outlook reflects S&P Global Ratings' view that performance could be pressured, though conditions remain uncertain, with the potential for COVID-19 related economic stress to extend in severity and length. If so, already tight leverage metrics could be further stressed, including debt to EBITDA sustained above 4x possibly into fiscal 2021, depending on the severity of the pandemic.
We could lower the rating if profitability weakens below our expectations because of COVID-19 and Molson Coors does not consider measures such as reviewing its dividend policy to repay more debt and sustain credit measures closer to our expectations. A downgrade would be likely if debt to EBITDA is sustained above 4x well beyond the next couple of quarters and into 2021, and if the company does not take additional measures to repay more debt.
If we lower the issuer credit rating to 'BB+', we would lower the short-term and commercial paper ratings to 'B'.

We could revise the outlook to stable if the company is on track to return credit measures to more typical levels in 2021. This will largely depend on the depth and level of pandemic-related stress on performance and Molson Coors' financial policy.
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