Cott Corp. Senior Unsecured Notes Rated 'B+' by S&P; Outlook Stable - Standard & Poor's CreditWire -
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. OUTLOOK: Stable. 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. -- CreditWire
SOURCE Standard & Poor's
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