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S&P affirms Molson Coors' ratings, maintains stable outlook

S&P Global Ratings on Aug. 23 affirmed Molson Coors Brewing Co.'s issuer credit rating at BBB- and short-term and commercial paper ratings at A-3, with a stable outlook.

The rating agency said that despite the brewer's weak operating performance and modest dividend increase, it expects earnings to stabilize as pricing actions take hold and cost inflation abates, enabling the company to generate cash flow and repay debt.

Ratings said the outlook reflects its expectation for continued credit measure improvement for the company as it shows a commitment to repaying debt restoring debt leverage to well below 4x over the next two years. It expects Molson Coors' EBITDA to remain flat over the next two years and for the company to generate annual discretionary cash flow of above $650 million.

Ratings also expects the brewer to generate about $2 billion of annual operating cash flows, covering its capital expenditure and dividends of slightly more than $1 billion.

The agency said it can downgrade the company's ratings if it cannot keep leverage below 4x. This could occur due to increased competition or a significant decrease in demand for the company's premium light beer, or if total industry beer volume falls.

While it said an upgrade is unlikely over the near term as it does not expect debt to EBITDA to decline to below 3.5x over the next two years, an upgrade is possible if Molson Coors improves its balance sheet through debt repayment and sustains adjusted leverage below 3x. The company should also avoid large and balance sheet-leveraging transactions, Ratings added.