Constellation Brands repays debt via notes; debt ratio down to 3.4x

By Devika Patel

Knoxville, Tenn., Jan. 5 – Constellation Brands, Inc. used the proceeds from what it described as its attractively priced November note sale to repay its variable-rate European term A loan debt.

The company has also managed to lower its leverage ratio below its targeted area of 3.5x at the end of its third quarter of fiscal 2018 from a 3.7x net debt to EBITDA ratio at the end of fiscal 2017.

“In November, we issued $2 billion of senior notes at attractive fixed rates and used the proceeds to repay amounts outstanding under our variable-rate European term A loan facility,” executive vice president and chief financial officer David Klein said on the company’s third quarter earnings conference call on Friday.

The company’s net debt to comparable basis EBITDA leverage ratio moved down to 3.4x at the end of November from 3.7x at the end of fiscal 2017.

The company strives to keep its leverage ratio in the 3.5x area.

“Our significant capital allocation flexibility allows us to continue to invest in our business and return cash to shareholders while remaining committed to our 3.5x leverage target,” Klein said.

For the first nine months of fiscal 2018, the company generated $763 million of free cash flow, compared to $824 million over the same period in fiscal 2017.

Constellation Brands priced $2 billion of fixed-rate senior notes (Baa3/BBB-) in three tranches on Oct. 31.

The company sold $600 million of 2% two-year notes at 99.86 and a spread of Treasuries plus 48 basis points. These notes will yield 2.072%.

It priced $700 million of 2.25% three-year notes at 99.804 and with a Treasuries plus 60 bps spread. These notes will yield 2.318%.

A $700 million tranche of 2.65% five-year notes priced at 99.582 and a spread of 73 bps over Treasuries. These notes will yield 2.74%.

The tranches were priced on the tight side of guidance.

BofA Merrill Lynch and J.P. Morgan Securities LLC were the bookrunners.

The notes are guaranteed by subsidiaries of Constellation that are guarantors under the company’s senior credit facility.

Constellation Brands is a Victor, N.Y.-based producer, importer and distributor of beer, wine and liquor.

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