DBRS Confirms Ratings of Molson Coors Brewing Company, Removes from Under Review - Developing

DBRS has today confirmed the short- and long-term ratings of Molson Coors Brewing Company (Molson Coors or the Company) and related entities at R-2 (high) and BBB (high), respectively. The trends are Stable. This action removes the Company from Under Review with Developing Implications.

DBRS placed the ratings of Molson Coors and related entities Under Review – Developing on October 10, 2007, following the Company’s announcement of its intention to form a joint venture to be known as MillerCoors with SABMiller plc to combine the U.S. and Puerto Rico operations of their respective subsidiaries.

Molson Coors and SABMiller received clearance from the U.S. Department of Justice on June 5, 2008 to proceed. On June 30, 2008, Molson Coors and SABMiller announced the closing of the transaction to create MillerCoors.

Molson Coors and SABMiller will each have a 50% voting interest in MillerCoors with five representatives each on its board of directors. Based on the economic value of the contributed assets, Molson Coors will have a 42% economic interest and SABMiller will have a 58% economic interest in MillerCoors. The partners do not intend on retaining a material level of debt in MillerCoors. Cash distributions to the partners and cash flow injections from the partners will be undertaken pro rata to the partners’ economic interests.

DBRS’s review focused on the details of the integration plan and organizational structure, with particular attention paid to the issue of structural subordination – as Coors Brewing Company (the entity that contained the U.S. assets which were rolled down into MillerCoors) is a guarantor for debt at Molson Coors Brewing Company and Molson Coors Capital Finance ULC.

Molson Coors has installed a guarantee from Molson Canada (its Canadian operating subsidiary) effective June 30, 2008, which effectively replaces the loss of direct access to U.S. assets with direct access to the higher value Canadian assets and resolves the concern of weaker asset coverage resulting from structural subordination.

In terms of business profile, Molson Coors continued to perform well with a slight overall share gain and effective pricing actions through 2007 and Q1 2008 that have helped the Company generate steady EBITDA (approximately $1.1 billion in 2007) within a rising cost environment. DBRS expects that MillerCoors will enable Molson Coors and SABMiller to better compete in the highly competitive U.S. market and improve operating and financial performance through increased productivity and more effective distribution, marketing and innovation. Molson Coors and SABMiller expect the transaction to generate approximately $500 million in annual cost synergies by the third full year of combined operations, which would help the Company continue improving profitability within a highly-inflationary environment.

DBRS forecasts that Molson Coors will generate EBITDA of approximately $1.125 billion and free cash flow of approximately $500 million in 2008, which could lead to an improvement in financial metrics (debt-to-EBITDA was 2.06x in 2007). DBRS believes enhanced earnings combined with higher free cash flow generation going forward would be indicative of an improving credit risk profile that could result in a Positive trend over the course of the next year. On the other hand, if MillerCoors performs well below expectations and/or Molson Coors invests in growth/returns to shareholders at levels above free cash flow, the overall credit risk profile would likely remain within the current rating categories.

Note:
All figures are in U.S. dollars unless otherwise noted.