The revolving credit facility and new notes contains financial covenants. Total net debt to EBITDA shall not exceed 3.00 to 1.00 and EBITDA to net cash interest shall not be less than 4.00 to 1.00. However, the notes agreement also allows maximum leverage to go up to 3.50x and minimum coverage to fall to 3.00x for two calculation dates after an acquisition greater than
KEY RATING DRIVERS:
Financial Performance and Brands: General Mills' ratings incorporate the company's strong profitability, substantial internally generated liquidity, and leading market positions in key categories. The company maintains significant brand equity in major product categories including cereal, yogurt, ready-to-serve soup, and snacks. Margins are among the sector's top tier, which provides ample financial flexibility. Credit strengths are balanced with General Mills' high priority for returning cash to shareholders.
Significant FCF: General Mills' annual free cash flow (FCF; cash flow from operations less capital expenditures and dividends) averaged more than
Flexibility for Moderate Discretionary Activities: Consolidated total debt-to-operating EBITDA was 2.5x, operating EBITDA-to- interest expense was 11.2x and funds from operations (FFO) interest coverage was 9.3x for the fiscal year ended
Near Term Improving Operating Environment: Fiscal 2014 net sales and operating income growth came in below Fitch's expectations. Fiscal 2014 net sales increased almost 1% to
Ample Liquidity: The company had cash and cash equivalents of
Future developments that may, individually or collectively, lead to a positive rating action include:
A ratings upgrade could occur if the company commits to maintain leverage (total debt to operating EBITDA) in the low 2x range while generating FCF at historical average annual levels or higher. A commitment to refrain from large debt financed share repurchases or acquisitions would also support an upgrade.
Future developments that may, individually or collectively, lead to a negative rating action include:
If the company engages in a significant debt-financed acquisition or share repurchase program, or operating earnings and margins come under severe pressure, resulting in a sustained period of leverage greater than 3.0x and weakening FCF.
Fitch currently rates General Mills' and its related entities as follows:
General Mills, Inc.
--Long-term Issuer Default Rating (IDR) 'BBB+';
--Senior unsecured debt 'BBB+';
--Senior unsecured credit facilities 'BBB+';
--Short-term IDR 'F2';
--Commercial paper (CP) 'F2'.
--Long-term IDR 'BBB+';
--Class A limited membership interests 'BBB+'.
--Long-term IDR 'BBB+';
--Credit facility 'BBB+'.
The Rating Outlook is Stable.
Additional information is available at 'www.fitchratings.com'.
--'Corporate Rating Methodology' (
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
Source: Fitch Ratings
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