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Fitch Rates Yoplait S.A.S.'s EUR200MM Credit Facility and EUR200MM Sr. Notes 'BBB+'

June 30, 2014

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has assigned 'BBB+' ratings to Yoplait S.A.S.'s EUR200 million five-year revolving credit facility due June 23, 2019 and EUR200 million senior unsecured notes due June 24, 2021. Concurrently, Fitch has withdrawn the 'BBB+' rating on Yoplait'sEUR300 million credit facility due in December 2014, which was terminated.

Yoplait utilized the net proceeds for general corporate purposes, including refinancing its previous credit facility mentioned above. General Mills has a 51% controlling interest in Yoplait S.A.S. and consolidates the entity. However, General Mills does not guarantee this debt. Guarantees are provided by certain Yoplait S.A.S. subsidiaries that comprise the vast majority of assets and income of the joint venture. Yoplait S.A.S.'s alignment with General Mills' core business, strategic importance and significant investment support align the ratings with General Mills' ratings. Yoplait's debt is structurally superior relative to the cash flows of Yoplait but is a modest portion of General Mills' capital structure.

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 $100 million. The notes agreement also contains a change of control provision which is an offer to prepay the entire unpaid principal at 100% plus accrued interest. The notes were issued under Yoplait S.A.S.'s note purchase agreement dated June 19, 2014.

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 $800 million during the past six years and was almost $900 million in fiscal 2014. The company utilizes its FCF for share repurchases, but has shown the discipline to pull back after acquisitions. General Mills engaged in significant net share repurchases in fiscal 2014 totaling $1.6 billion.

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 May 25, 2014. The company's leverage remains adequate for the rating level, although leverage has increased slightly within the rating category as the company engaged in a higher level of partially debt financed share repurchases in fiscal 2014.

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 $17.9 billion and adjusted operating segment income fell approximately 2% to $3.2 billion. Adjusted gross margins for the year fell 80 basis points to 35.4%, reflecting the business mix due to acquisitions and higher input costs, particularly for dairy. The company's supply chain input costs moderated from 10% in fiscal 2012 to 3% annually in fiscal 2013 and 4% fiscal 2014. The company's current guidance is for modest 3% input cost inflation in fiscal 2015. General Mills expects mid single digit net sales and adjusted segment operating profit growth in fiscal 2015 on a constant currency basis.

Ample Liquidity: The company had cash and cash equivalents of $867.3 million and $2.7 billion of undrawn committed credit facilities at its fiscal 2014 year-end that support its CP program. The facilities consist of a $1 billion revolver expiring in May 2019 and a $1.7 billion revolver expiring in April 2017. Total debt of $9 billion includes an estimated $251.5 million class A limited membership interests. Upcoming long-term debt maturities are substantial but manageable and consist of $1.2 billion due in fiscal 2015, $500.5 million due in fiscal 2016 and $1 billion due in fiscal 2017. Fitch expects that General Mills is likely to refinance this debt. The company repaid $300 million 1.55% notes and $400 million floating rate notes due in May 2014.

RATING SENSITIVITIES:

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'.

General Mills Cereals LLC

--Long-term IDR 'BBB+';

--Class A limited membership interests 'BBB+'.

Yoplait S.A.S.

--Long-term IDR 'BBB+';

--Credit facility 'BBB+'.

The Rating Outlook is Stable.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (May 2014).

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=837174

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings, Inc.

Primary Analyst

Judi M. Rossetti, CPA/CFA, +1-312-368-2077

Senior Director

Fitch Ratings, Inc.

70 W. Madison Street

Chicago, IL 60602

or

Secondary Analyst

Grace Barnett, +1-212-908-0718

Director

or

Committee Chairperson

Wesley E. Moultrie II, CPA, +1-312-368-3186

Managing Director

or

Media Relations

Brian Bertsch, +1-212-908-0549

brian.bertsch@fitchratings.com

Source: Fitch Ratings


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