NEW YORK, June 5 /PRNewswire/ -- Standard & Poor's today has assigned its
single-'B'-plus rating to Cott Corp.'s US$125 million senior unsecured notes
due 2007. The majority of proceeds from this financing are expected to be used
for equipment purchases, plant building, and bank debt refinancing.
Also, Standard & Poor's has affirmed its double-'B'-minus corporate
credit rating and single-'B'-plus senior unsecured debt rating on the company.
The rating outlook is stable.
Total debt outstanding at Jan. 25, 1997 was about C$300 million.
Ratings reflect the Canadian-based Cott's below average business risk
profile, participation in the somewhat mature and highly competitive soft
drink markets, and high debt leverage appropriate for the rating category.
Cott is the leading supplier and low-cost producer of premium quality
private label soft drinks in the U.S., U.K., and Canada. The ability to
provide premium private label soft drink programs tailored for individual
customers enables Cott to differentiate itself from other private label
producers. Although Cott only maintains an estimated 4% share of supermarkets
in the mature U.K. soft drink market, its 30% share of supermarkets in the
more mature Canadian soft drink market is at parity with its primary national
brand competitors, Coca-Cola and PepsiCo. However, about 54% of total 1997
revenues were generated from U.S. soft drink sales, in which Cott's
supermarket share is estimated to be only about 4%.
Cott's strategy is to grow its share of the U.S. private label market
through increased penetration of existing customers, the addition of new
customers, and expansion of its product offering. Increased self-manufacturing
from the addition of two new U.S. plants, as well as the addition of PET
(polyethylene terephthalate) bottle manufacturing capacity, should enable the
company to improve fiscal 1997 EBITDA (earnings before interest, taxes,
depreciation, and amortization) margins of over 8%. However, an increased
focus on market share growth by national brands Coke and Pepsi, both
domestically and internationally, could limit future margin growth.
Cott's operating performance has improved since a worldwide corporate
restructuring began in late fiscal 1996, which resulted in reduced operating
costs, rationalization of international operations, disposition of noncore
businesses, and the realignment of Cott's beverage business. EBITDA to
interest improved to over 4 times (x) in fiscal 1997 from about 3x in 1996
(adjusted for certain nonrecurring items), and Standard & Poor's expects pro
forma coverage to remain over 4x, despite increased debt levels. Pro forma for
the new note issue, debt levels are expected to rise to about C$450 million,
and Standard & Poor's expects debt to EBITDA will be about 3.3x. Given the
company's significant capital investment plans, Standard & Poor's does not
expect any material debt reduction over the near term. Financial flexibility
continues to be provided by the maintenance of substantial cash balances, as
well as availability under bank credit lines.
Standard & Poor's anticipates that continued operating efficiency
improvements and increased self-manufacturing should enable the company to
sustain credit measures appropriate for the rating category, despite continued
competitive pressures within the private label soft drink industry.
SOURCE Standard & Poor's