DBRS Confirms The Coca-Cola Company at AA (low) and R-1 (middle) with a Stable Trend

DBRS has today confirmed the Senior Unsecured Debt rating of The Coca-Cola Company (Coke or the Company) at AA (low) and its Commercial Paper rating at R-1 (middle); the trends are Stable. Despite challenging economic conditions, Coke’s earnings profile continues to remain strong due to the strength of the Company’s brand portfolio, geographic diversification and performance in high-growth international markets.

Coke’s earnings continue to benefit from exceptional revenue growth, driven by bottler acquisitions and strong performance in Coke’s international business. Solid international volume growth (i.e., in developing markets) continues to offset modest growth in Europe and declining North American volumes, which are being increasingly affected by lower consumer spending. While positive performance trends continue in F2008, overall volumes are growing at a slower pace given an increasingly difficult global macroeconomic environment.

Despite the expectation of slower growth, DBRS believes that expansion of the Company’s international segment and still-beverages portfolio will allow Coke to continue meeting its long-term targets of 3% to 4% volume growth and 6% to 8% operating income growth over the near to medium term. Growth of the still-beverages portfolio should also benefit from Coke’s pending $2.4 billion acquisition of the leading Chinese juice company China Huiyuan Juice Group Limited (Huiyuan), which, if approved, will provide Coke with a strong complementary product offering and significant share in the fast-growing Chinese juice market.

While cash flow has improved, debt-financed acquisitions have increased Coke’s debt levels (i.e., adjusted debt-to-EBITDA of 1.2 times (x) at September 2008). DBRS expects lower debt levels by year-end (i.e., approximately $10 billion), which will improve leverage to a more comfortable level of roughly 1.0x. DBRS notes that leverage at this level remains high for the rating; therefore, further debt increases could result in ratings pressure. That said, DBRS notes that current leverage remains comfortable on a net debt basis.

Financial leverage of the Coke system (i.e., Coke and its four largest bottlers) continues to remain relatively stable, with debt-to-EBITDA of 1.72x at year-end 2007 compared with 1.63x at year-end 2006 and 1.78x at year-end 2005. With the risk profile of the Coke system intact, DBRS believes Coke’s slightly higher leverage is not material to the ratings at this time. A decline in overall system performance or material debt-financed acquisitions or share repurchases that result in a meaningful increase in leverage for the Coke system could, however, result in pressure on the ratings.

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