Fitch Ratings has affirmed all ratings for The Coca-Cola Company (Coca-Cola) and its subsidiary, including the Long-Term Issuer Default Ratings (IDR) at 'A', and Coca-Cola's Short-Term IDR at 'F1'.

The Rating Outlook is Stable.

Coca-Cola's ratings reflect its significant scale, geographic reach and strong valuable brand portfolio leveraging an extensive distribution network anchored by the Coca-Cola bottling system, which generates strong profitability and cash flow. Coca-Cola's strong execution on strategic initiatives including revenue growth management, capabilities, brand investments, and innovation has offset inflationary headwinds resulting in good operating momentum with EBITDA, based on Fitch adjustments, increasing to USD13.7 billion in 2022 compared to USD12.1 billion in 2019.

Fitch expects Coca-Cola's capital-allocation strategy over the longer term will be focused on growth capital investments, bolt-on acquisitions and shareholder returns, while sustaining net leverage in its public target range of 2.0x-2.5x, which roughly equates to Fitch's gross EBITDA leverage calculation of 3.0x-3.5x.

Key Rating Drivers

Good Operating Momentum: Coca-Cola generated strong top-line growth the past two years following significant disruption in the away-from-home business during the pandemic, including revenues up 11% in 2022 to USD43.4 billion, 15% higher than pre-pandemic levels. This was supported by volume recovery and share gains, reflecting good execution on brand building, innovation and revenue growth management. EBITDA increased to USD13.7 billion in 2022, a 6% yoy increase, and USD1.6 billion higher than 2019. This reflects accelerated initiatives to streamline business units, optimize its global portfolio to refocus investment on key brands and improve marketing effectiveness.

Fitch expects Coca-Cola will continue to focus on driving premiumization and new product innovation while leveraging various affordability options across its emerging and developed markets to help offset potential pressures from softer consumption/spending trends and weakening consumer sentiment. In 2023, Fitch projects revenue could be could be around USD44.7 billion, reflecting organic sales growth approaching 8% driven largely by price/mix with EBITDA around USD14 billion. Fitch expects revenue in 2024 could be around the mid USD45 billion area reflecting low-single digit growth due to muted global growth expectations and reduced consumer spending with EBITDA in the low USD14 billion range.

Contingent Tax Liability Risk: The U.S. Tax Court issued an opinion in 2020 that primarily sided with the IRS regarding an ongoing tax litigation case with Coca-Cola dating back to 2015. The dispute centers on the transfer pricing methodology involving taxable income the company should report in the U.S. between 2007-2009 tax period. As of Dec. 31, 2022, the tax liability was USD5.2 billion which Fitch incorporates into its 2023 base case forecast. This opinion also subjects Coca-Cola to potential tax liabilities in subsequent periods after 2009. Coca-Cola estimates the current total tax liability for all periods at around USD14 billion as of Dec. 31, 2022, plus additional accrued interest until the liability is paid.

Given Coca-Cola's strengthened financial profile, Fitch views the company as having increased financial flexibility to manage potential implications arising from the tax liability. Levers Coca-Cola could pull include debt financing, excess balance sheet cash/short-term investments, bottling asset sales and changes to its capital allocation policy. Should the entire tax liability come to fruition, Fitch would assess the actions the company pursues to finance the obligation and resulting impact to Coca-Cola's ratings. Significant uncertainty exists around the timing of a final resolution of this potential tax liability that could extend several more years due to the likelihood for appeals.

Leverage Expectations: Fitch expects Coca-Cola's long-term capital-allocation strategy will focus on growth capital investments, bolt-on acquisitions and shareholder returns while sustaining net leverage within its public target range of 2.0x-2.5x, which roughly equates to Fitch's EBITDA leverage calculation of 3.0x-3.5x. Coca-Cola's EBITDA leverage, based on Fitch adjustments, decreased to approximately 2.8x in 2022, compared with 3.1x in 2021 and 3.5x in 2020 following a strong recovery from pandemic-related EBITDA pressure.

In 2023, Fitch projects EBITDA leverage of approximately 3.1x based on EBITDA around USD14 billion range and increased debt, reflecting the assumption Coca-Cola makes a tax payment related to the potential liability for the 2007-2009 tax period.

Strong Global Brands: Coca-Cola's ratings are supported by its strong market shares, extensive geographic diversity in more than 200 markets, robust distribution platform that leverages its strong relationships across its bottling partners and valuable brand equity. Fitch expects the company should generate sustainable and growing cash flows leveraged by a scalable portfolio with 26 USD1 billion brands that result in further share growth opportunities, particularly in emerging/developing markets.

Fitch expects Coca-Cola will continue exploring consumer-centric bolt-on M&A and partnerships that broadens its beverage portfolio to increase diversification into faster growing categories. Past acquisitions include the 85% stake in BodyArmor in 2021 for USD5.6 billion, the remaining 57.5% stake in fairlife, LLC for roughly USD1 billion in 2020, based on Fitch assumptions, and the USD4.9 billion acquisition of Costa Limited in 2019, which the company is focused on scaling the platform across multiple formats and channels. Coca-Cola is also experimenting with extending the portfolio into the alcoholic space through strategic relationships through leveraging its brand portfolio including Topo Chico, Fresca, Simply and Coca-Cola brands.

Further monetizations of international bottling operations are also likely including a potential IPO of a portion of its 66% interest in the African bottling assets. Coca-Cola recently completed monetizations of stakes in Vietnam and Indonesia in that generated sale proceeds of more than USD1 billion.

Parent Subsidiary Linkage: Fitch's analysis includes a strong parent/weak subsidiary approach between the parent, Coca-Cola, and its subsidiary. Fitch assesses the quality of the overall linkage as high that results in an equalization of IDRs across the corporate structure.

Derivation Summary

Coca-Cola's 'A'/Stable ratings reflect its industry-leading scale and brand strength as the world's largest beverage company, supported by its strong market shares, extensive geographic diversity in more than 200 markets, robust distribution platform and valuable brand equity. As such, Fitch believes the company is strongly position relative to its peers, which should lead to sustainable growth in cash flows over the long term.

Given the prominence of carbonated soft drinks in Coca-Cola's beverage portfolio, the ratings consider the exposure to certain beverages with higher levels of sugar and consumer preference shifts toward healthier products. Coca-Cola has adapted its strategy to improve its innovation pipeline, accelerate global reformulations with hundreds of brands, modified price/mix and pursued M&A at the same time it has shifted and scaled successful regional brands into new regions, improving diversification and growth trajectory.

Fitch expects Coca-Cola's capital-allocation strategy over the medium to longer term will be focused on growth capital investments, bolt-on acquisitions and shareholder returns while sustaining net leverage in the range of its public target.

Similarly rated credits include Coca-Cola bottlers Coca-Cola FEMSA S.A.B. de C.V.'s (KOF; A/Negative) and Coca-Cola Europacific Partners plc (CCEP; BBB+/Stable).

KOF's ratings reflect its position as the largest franchise bottler in the world of Coca-Cola products by sales volume with operations across Latin America, a broad portfolio of beverages categories, and a well-developed distribution network. The company maintains a solid financial position with low leverage metrics, consistent FCF generation and ample liquidity. The Standalone Credit Profiles of the company are rated one notch higher than its applicable Country Ceiling of Mexico given its U.S. dollar denominated cash position held offshore and EBITDA generation from overseas that more than covers its hard currency debt service over the rating horizon.

CCEP's ratings reflects its substantial scale as the largest bottler (by revenue) in Coca-Cola's bottling system globally, that enables scope for a coordinated operational strategy and enhanced capabilities to maintain resilience against ongoing market pressures on carbonated soft drink products. The group's credit profile benefits from improved geographical diversification following the Coca-Cola Amatil Limited acquisition. It also benefits from the strength of its brands portfolio in sparkling drinks and expansion to other beverage types including faster-growing categories of energy and ready-to-drink tea and coffee.

The Stable Outlook reflects Fitch's expectations that CCEP will maintain a disciplined financial policy, for example, by not engaging in share buybacks, until leverage returns to levels it had before the acquisition of Coca-Cola Amatil Limited in 2021. CCEP's ratings reflect a one-notch uplift for Coca-Cola's support given the strategic and operational incentives.

Key Assumptions

2023 revenue could be around USD44.7 billion, reflecting total revenue growth (including f/x and structural changes) of 4%. The organic sales growth could be close to 8% with approximately 7% from price/mix and less than 1% volume growth. Fitch expects revenue in 2024 could be around the mid USD45 billion area reflecting low-single digit growth due to muted global growth expectations and reduced consumer spending;

2023 EBITDA could be around USD14 billion with EBITDA margins around 31.2% versus a 2022 EBITDA margin of 32.0% given inflationary pressures. EBITDA could be in the low USD14 billion area in 2024 with EBITDA margins of around 31.0%;

Coca-Cola's senior notes are fixed-rate debt. Coca-Cola has a commercial paper program as part of its debt financing strategy which had USD5.3 billion outstanding as of March 31, 2023 compared to USD2.1 billion as of Dec. 31, 2022. Coca-Cola uses interest rate swap agreements as part of its hedging strategy. Based on the Coca-Cola's variable-rate debt and derivative instruments outstanding as of Dec. 31, 2022, the company estimates that a one percentage point increase in interest rates would increase interest expense by USD136 million in 2022. The increase in interest expense is partially offset by the increase in interest income due to higher interest rates. Fitch uses this assumption to determine net interest expense over its forecast period. Fitch forecasts net interest expense could be around USD800 million in 2023 and more than USD900 million in 2024;

FCF (after dividends), which has averaged approximately USD2.3 billion annually during the past four years could trend around USD1 billion annually in 2023 and 2024. Factors affecting FCF levels include higher net interest expense due to exposure to rising interest rates, increased tax payments through 2025 related to the Tax Cuts and Jobs Act repatriation tax and payments, and increased capital spending for capacity expansion in developing markets including India, Philippines and Africa;

USD5.5 billion payment in 2023 related to the ongoing tax litigation for the 2007-2009 tax period;

Share repurchases to offset dilution in 2023 and 2024;

EBITDA Leverage of approximately 3.1x in 2023 and 2024. Longer term, Fitch would expect Coca-Cola would manage its capital allocation policy focused on growth capital investments, bolt-on acquisitions and shareholder returns while sustaining net leverage in its public target range of 2.0x-2.5x, which roughly equates to Fitch's EBITDA leverage calculation of 3.0x-3.5x.

RATING SENSITIVITIES

Positive rating actions are not anticipated in the intermediate term given Coca-Cola's current financial policy target 2.0x-2.5x net leverage, which roughly equates to Fitch's EBITDA leverage calculation of 3.0x-3.5x.

Factors that could, individually or collectively, lead to positive rating action/upgrade:--EBITDA leverage below 2.5x;

Organic revenue growth sustained in the mid-single digits;

FCF margin sustained in the mid-single digits.

Factors that could, individually or collectively, lead to negative rating action/downgrade:--Weakening of operating performance with organic revenue growth decelerating to the low-single digits and/or EBITDA margins trending toward 30% or less; and/or more aggressive financial strategy related to dividend, M&A, share repurchases that results in EBITDA leverage above 3.5x;

An adverse outcome of its contingent tax liability that would stress leverage beyond a level consistent with its 'A' rating.

Best/Worst Case Rating Scenario

International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.

Liquidity and Debt Structure

Substantial Liquidity: As of March 31, 2023, Coca-Cola had cash, cash equivalents and short-term investments of approximately USD13.2 billion and USD1.2 billion in marketable securities. Coca-Cola also had USD4.2 billion in undrawn backup lines of credit as of March 31, 2023 with rolling maturities through 2028. Coca-Cola had CP balances of USD5.3 billion as of March 31, 2023 which are backstopped by lines of credit and cash. Coca-Cola's reliance on CP balances has moderated substantially compared with USD10 billion at the end of 2019 and a past peak level of USD19 billion.

Coca-Cola's long-term note maturities during the next three years include around USD100 million in 2023, roughly USD2 billion in 2024 that includes EUR500 million, AUD550 million and USD1 billion.

Material Exposure to Floating Rates: Coca-Cola has material exposure to rising interest rates as result of its hedging strategy that uses interest rate swap agreements. Based on Coca-Cola's variable-rate debt and derivative instruments outstanding as of Dec. 31, 2022, the company estimates that one a percentage point increase in interest rates would increase interest expense by USD136 million in 2022. As a result, Fitch estimates Coca-Cola's exposure to floating rate debt when including commercial paper borrowings is roughly 45% as of March 31, 2023.

The increase in interest expense is partially offset by increased interest income due to the higher interest rates. Fitch's assumptions reflect net interest expense of around USD800 million in 2023 which assumes debt increases to USD45.4 billion from USD40.8 billion. In 2024, net interest expense could increase to more than USD900 million with debt flat. This compares to net interest expense of about USD400 million in 2022.

Issuer Profile

The Coca-Cola Company is the world's largest beverage company that is sold in more than 200 countries and territories. Coca-Cola owns, licenses and markets numerous beverage brands across several categories including: sparkling, hydration, sports, coffee and tea, nutrition, juice, dairy, plant-based and alcoholic beverages.

Summary of Financial Adjustments

Historical and projected EBITDA is adjusted to add back non-cash stock-based compensation expense and restructuring as reported in financials;

Adjustments made to net cash for system cash required for working capital, marketable securities and cash located in certain foreign jurisdictions that are not considered readily available by Fitch;

Bottler dividends (USD634 million in 2022) added back to EBITDA.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

Coca-Cola has an ESG Relevance Score of '4' for social impacts due to the shifting consumer preferences with reducing sugar consumption, which has affected the demand for certain beverages with higher levels of sugar.

Similarly, an ESG Relevance Score of '4' is for Customer Welfare due to product labelling/health & nutrition. These trends have caused beverage companies, including Coca-Cola, to increase investments in R&D to modify and extend portfolios by accelerating reformulation of hundreds of brands to adapt to changing consumer behaviors. This has a negative impact on the credit profile and is relevant to the rating in conjunction with other factors.

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3' - ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.

15

Fitch Affirms CNH Industrial Capital LLC at 'BBB+'/'F2'; Outlook Stable

Wed 24 May, 2023 - 5:12 pm ET

Fitch Ratings - Chicago - 24 May 2023: Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDRs) and senior unsecured debt ratings of CNH Industrial Capital LLC (CNHI Capital) and CNH Industrial Capital Canada Ltd. (CNH Canada) at 'BBB+'. The Rating Outlook is Stable. Fitch has also affirmed CNHI Capital's Short-Term IDR and commercial paper (CP) rating at 'F2'.

Fitch has affirmed the Shareholder Support Rating (SSRs) of 'bbb+' for CNHI Capital and CNH Canada in line with Fitch's updated Non-Bank Financial Institutions Rating Criteria, dated May 5, 2023.

Key Rating Drivers

CNHI Capital's rating and Rating Outlook are equalized with that of CNH Industrial N.V. (CNHI or parent, rated BBB+/Stable), reflecting Fitch's view that the company is a core subsidiary of its parent. This approach is based on CNHI's 100% ownership of CNHI Capital, shared branding between the two entities and the importance of CNHI Capital to CNHI's strategic objectives of providing financing across its industrial businesses, which include agricultural equipment and construction equipment.

According to a Support Agreement between the two entities, CNHI must maintain 51% ownership of CNHI Capital, maintain CNHI Capital's net worth at not less than $50 million, and maintain CNHI Capital's fixed-charge coverage at not less than 1.05x quarterly.

CNHI Capital and CNH Canada's Shareholder Support Ratings (SSRs) of 'bbb+' are aligned with the parent's IDR and indicates the minimum level to which the captive finance companies' IDRs could fall if Fitch does not change its view on potential support from CNHI. A Shareholder Support Rating of 'bbb+' indicates a very high probability of external support being forthcoming.

Beyond these support-driven considerations, Fitch believes CNHI Capital and CNH Canada's ratings are also supported by their consistent operating performance, solid asset quality and sufficient liquidity. These factors are counterbalanced by the company's elevated leverage relative to stand-alone finance companies and its largely secured funding profile.

Asset quality metrics remain solid with delinquencies greater than 30 days past due at 0.8% of gross receivables at March 31, 2023 (1Q23). Write-offs, net of recoveries remained flat year-over-year at 0.1% of average managed receivables in 1Q23, demonstrating the company's solid underwriting and collection practices. Fitch expects the levels of delinquencies and net charge-offs to remain stable in the medium term.

Operating performance at 1Q23 was mixed yoy, supported by higher rates and levels of average earnings assets leading to an increase in interest income, offset by higher funding costs, diminished inventory levels, and a decline in rental income on operating leases.

CNHI Capital's pre-tax return on average assets was 2.0%, TTM ending 1Q23, which was down from 2.5% at FYE22. The firm's four-year average pre-tax ROAA was 1.9%. Fitch expects CNHI Capital's operating metrics to revert slightly downward from its long-term average due to higher interest expenses and potentially higher credit costs. Further, higher rates could also weigh on the demand for CNHI Industrial's agricultural and construction equipment, which would potentially reduce origination volume at the captive, negatively affecting earnings performance.

Leverage is higher than stand-alone finance & leasing companies but remains in-line with captive peers. CNHI Capital's debt-to-tangible equity was 9.0x at 1Q23, down from 9.2x as of FYE22. The company employs a flexible dividend policy with its parent to manage leverage at the captive level. Leverage for covenant purposes, defined as the ratio of total net debt to equity, amounted to 7.7x at 1Q23, which is below the maximum allowed of 9.0x.

CNHI Capital remains largely reliant on secured debt for a meaningful portion of its funding, in the form of asset-backed securitizations and revolving credit facilities. As of 1Q23, secured debt was 61% of total debt, which is high relative to captive peers. Fitch would view an increase in unsecured debt favorably as it would enhance the firm's funding flexibility.

Fitch believes CNHI Capital's liquidity profile is adequate given consistent operating cash flow generation and available cash on hand of $178 million as of 1Q23 and $206 million outstanding under its credit facilities. The firm issued $600 million of senior unsecured notes in April 2023 in anticipation of a July 2023 maturity of the same dollar amount, showing sound liquidity risk management.

According to Fitch's 'Non-Bank Financial Institutions Rating Criteria,' a Long-Term IDR of 'BBB+' maps to a 'F2' or 'F1' Short-Term IDR. Given Fitch's view of the parent's financial flexibility, the Short-Term IDR of 'F2' has been affirmed.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

A change in the perceived relationship between CNHI, CNHI Capital and CNH Canada, such that Fitch believed that the captive had become less central to CNHI's strategic operations and/or adequate financial support was not provided to the captive finance company during challenging economic market conditions or times of stress could result in negative rating action.

Consistent operating losses, a material and sustained increase in balance sheet leverage, a deterioration in the company's liquidity profile, and an alteration of CNHI Capital's risk profile, could also drive negative ratings actions.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

Fitch's view of CNHI Capital credit profile and CNH Canada's ratings and Outlook are linked to that of its parent. Fitch cannot envision a scenario where the captive would be rated higher than its parent.

The Short-Term IDR is primarily sensitive to the Long-Term IDR and would be expected to move in tandem. However, a material improvement in CNHI Capital's funding and liquidity profile could result in an upgrade of the Short-Term IDR to 'F1'.

The SSRs are mostly sensitive to changes in CNHI's IDR, and to changes in Fitch's assessment of the probability of support being extended to CNHI Capital and CNH Canada from CNHI.

DEBT AND OTHER INSTRUMENT RATINGS: KEY RATING DRIVERS

CNHI Capital's Commercial Paper rating is equalized with its Short-Term IDR.

The senior unsecured debt rating is equalized with the Long-Term IDR, reflecting a sufficient proportion of unsecured funding in the capital structure and the unencumbered asset pool, which suggests average recovery prospects for debtholders under a stress scenario.

DEBT AND OTHER INSTRUMENT RATINGS: RATING SENSITIVITIES

The commercial paper rating is equalized with the Short-Term IDR and would be expected to move in tandem.

The senior unsecured debt rating is linked to the Long-term IDR and would be expected to move in tandem, although a meaningful decline in the proportion of unsecured debt could result in the debt being notched below the IDR.

SUBSIDIARY AND AFFILIATE RATINGS: KEY RATING DRIVERS

CNH Canada's ratings are linked to CNHI Capital and ultimately CNHI's Long-Term IDR and would be expected to move in tandem. Fitch considers CNH Canada to be a core subsidiary of CNHI Capital, which reflects the actual and potential support provided by CNHI, its role in providing financing to CNHI's products, shared branding and an unconditional guarantee on CNH Canada's unsecured debt.

SUBSIDIARY AND AFFILIATE RATINGS: RATING SENSITIVITIES

CNH Canada's ratings are linked to CNHI Capital and ultimately CNHI's Long-Term IDR and would be expected to move in tandem.

Best/Worst Case Rating Scenario

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

Public Ratings with Credit Linkage to other ratings

CNH Canada's ratings are directly linked to CNHI Capital's ratings, which are equalized with CNH Industrial N.V. (CNHI or parent; BBB+/Stable). Fitch considers CNH Canada to be a core subsidiary of CNHI Capital, which reflects the actual and potential support provided by CNHI, its role in providing financing to CNHI's products, shared branding, and an unconditional guarantee on CNH Canada's unsecured debt

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.

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