Moody's downgrades Coca-Cola to A1 after Costa acquisition
Moody's downgraded the senior unsecured long term rating of Coca-Cola to A1 from Aa3 and affirmed the company's Prime-1 short term ratings. These actions conclude the review for downgrade that was initiated on August 31 following the company's announcement that it had agreed to purchase Costa Limited for $5.1B in cash. "The downgrade reflects Moody's view that Coca-Cola has adopted a more aggressive financial policy, and that the system financial leverage will be more consistent with an A1 rating," the agency agency says in a statement. The acquisition "provides diversification into a growing beverage space, but introduces new risks since it operates differently than Coke's core, ready to drink packaged beverage businesses," adds Moody's. "The acquisition follows its August 2018 investment in BodyArmor sports drinks. The two transactions demonstrate the likelihood that cash resources will be used for investment opportunities in addition to debt repayment. Finally Coca-Cola's dividend has grown faster than earnings and remains high, leaving retained cash flow somewhat weak relative to debt."