Bimbo subordinated debt draws lower credit rating

by Josh Sosland
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NEW YORK — Moody’s Investors Service on April 12 assigned a Ba1 credit rating to $500 million in subordinated perpetual notes proposed by Bimbo S.A.B. de C.V.

Moody’s said the new debt would not affect existing Bimbo debt (and its higher rating) and that the company’s credit outlook remains stable.

Proceeds from the debt offering will be used for general corporate purposes, including repayment of existing debt, payment for recent acquisitions and partial funding of capital expenditures.

Perpetual subordinated loans continue indefinitely with no maturity date. Issuers pay a stream of interest forever with no principal repayment. The Bimbo transaction was priced to yield 5.95% at par value.

“The Ba1 rating assigned to the hybrid instrument is two notches below Bimbo’s Baa2 senior unsecured rating, reflecting the characteristics of the proposed notes. Accordingly, the hybrid is a perpetual, deeply subordinated debt instrument that is treated as a preferred equivalent under our rating methodology and allows Bimbo to opt for coupon deferral on a cumulative basis,” said Alonso Sanchez, a vice-president at Moody’s.

“The ratings agency said the hybrid has equity-like features which allow it to receive a basket ‘C’ treatment (meaning 50% equity and 50% debt) for the purpose of adjusting financial statements.”

The Baa2 senior rating for unsecured rating is supported by Bimbo’s position as the largest baked goods company in the world, with an ample distribution infrastructure in its key markets; sustained free cash flow generation; and adequate geographic diversification, Mr. Sanchez said.

At the same time, Bimbo’s acquisitions have increased its leverage and execution risk – dynamics that have been factored into the Baa2 rating.

Bimbo management benefits, though, from a good track record of integrating acquisitions while capturing synergies.

Moody’s noted that while 50% of the hybrid will be treated as debt, the $500 million in notes will add only $80 million in debt to Bimbo's balance sheet, since most of the money will be used to repay existing debt.

Bimbo’s liquidity is further strengthened by $2.1 billion in committed credit facilities, all of which will be available following the issuance of the new notes.

The company hailed the debt offering as an important step to furthering the company’s financial strength.

“This is a new instrument for Grupo Bimbo making it the first hybrid bond issued by a Mexican consumer company, aligned with our financial policies,” said Diego Gaxiola, chief financial officer of Grupo Bimbo. “As it supports to preserve a healthy financial position, enhances the strength, stability and flexibility of our capital structure, reinforces our commitment to deleverage and maintain our investment grade rating, and bolsters liquidity. Moreover, our market leadership, coupled with our diversified revenue base, geographic presence, category and distribution channels, largely contributed to attract the attention of more than 200 international investors, evidencing our growing international profile and commitment to expand our stakeholder base.”
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By rosie.araujo@bbumail.com 4/16/2018 7:10:16 AM
FYI