Fitch: Acquisition 'moderately negative' to Bimbo credit quality
February 13, 2014
by Eric Schroeder
MONTERREY, MEXICO — Following the announcement that Grupo Bimbo S.A.B. de C.V. has agreed to acquire Canada Bread Company Ltd. for $1,663 million, Fitch Ratings on Feb. 12 said it believes the deal is “moderately negative” to Bimbo’s credit quality and its “BBB” ratings. Fitch maintained its “stable” outlook for Bimbo.
The ratings agency expects Bimbo’s pro forma total debt to EBITDA to increase to slightly above 3 times, which is high for the rating category, before trending to its long-term target of 2 times. Fitch did note that negative rating actions of Bimbo may be triggered if leverage remains above 3 times for a sustained period of time.
“Positively mitigating increase leverage, the acquisition of Canada Bread improves the company business risk profile by strengthening its position as a global player in the bakery industry, as well as incorporating strong brands to its product portfolio and accessing key large retailers and leading food services accounts,” Fitch said. “The acquisition will also bring Bimbo geographic diversification of revenues and EBITDA generation from Canada, a country rated ‘AAA’ by Fitch, and good levels of profitability. Going forward, consolidated EBITDA generation will be mostly generated by Mexico, United States and Canada. On a pro forma basis, Canadian operations will represent around 10% and 14% of Bimbo’s consolidated revenues and EBITDA, respectively.”
Fitch also said Bimbo’s ratings reflect its size and scale within the global bakery industry and its strong brand recognition and positioning in the markets where it operates, and its extensive distribution network that provides a key competitive advantage. The ratings also consider the company’s stable operations with historically low volatility in revenues and margins, diversified revenue base and positive free cash flow generation.