Moody's confirms Grupo Bimbo credit ratings

by Josh Sosland
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MEXICO CITY — In a move affecting NP 20,000 million ($1,580 million) in debt, Moody’s de Mexico, S.A. de C.V., has confirmed the Baa2 unsecured rating of Grupo Bimbo S.A.B. de C.V.

The confirmation completes a review that began in November 2010, when Bimbo announced plans to acquire the fresh baking business in North America of Sara Lee Corp. At the time, Moody’s was considering Bimbo for a downgrade.

Moody’s said the credit outlook for Bimbo was stable.

“The ratings confirmation reflects our expectation that the acquisition of Sara Lee’s North American Fresh Bakery business will be finalized without any major operational issues and that it will improve Bimbo’s position in the U.S. and increase its U.S. generated revenues to approximately 51% of total revenues (vs. 41% before the acquisition),” Moody’s said. “While there exists the likelihood that the company will incur additional operating expenses to integrate Sara Lee's operation, the ratings consider that it will have a temporary impact on the credit metrics and that the company will be able to maintain its cash flow generation and improve its leverage and margins over time.”

Expanding on the rating, Moody’s said Bimbo enjoys a number of positives, including its position as the largest baked foods company in Mexico and in the United States, its sustained free cash flow generation, geographic diversification, experienced management team and prudent financial policies.

“These credit positives are partly offset by the competitive nature of the markets the company operates (in particular in the U.S.), lower margins in the U.S. operations, currency and commodity exposure in its cost structure, and the volatility of results in its Latin American operations, although these represent only around 10% of total revenues,” Moody’s said.

From a balance sheet perspective, Moody’s said it was impressed with the liquidity of Bimbo, as of June 30 “with existing cash reserves and free cash flow easily covering upcoming near-term debt maturities.”

The company’s cash reserves of NP9,132 million were easily large enough to cover short-term debt of NP1,986 million.
“However, considering that Bimbo has to disburse up to $956 million in cash for the Sara Lee N.A.F.B. business acquisition the company will need to maintain access to external funding sources in order to maintain an adequate liquidity profile,” Moody’s said.

Moody’s also confirmed Bimbo’s Moody’s noted that its National Scale Ratings (N.S.R.) of The N.S.R.’s “are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks,” Moody’s said. “N.S.R.s differ from Moody's global scale ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with N.S.R.s for other rated debt issues and issuers within the same country.”
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