Leading wine and spirits distributor,
Constellation Brands Inc.
), took a step forward in enhancing the flexibility of its finances
by signing up for an additional credit facility with maturities
ranging from five to seven years.
Constellation Brands has acquired a new senior credit facility,
including a revolving credit facility and two-term loan agreements.
The company's new $850 million revolving credit facility has a
maturity date after five years and currently remains undrawn. The
two term loan agreements, A and A-1, worth $550 million and $250
million, respectively, extend over periods of five and seven years.
Constellation Brands used the funds from the two term loans to
pay back the outstanding amounts under the company's previous
senior credit facility.
The company's new credit arrangement follows a $600 million
worth senior notes issued on April 16, 2012. Bearing a coupon rate
of 6%, these notes have a maturity date of May 1, 2022.
These transactions indicate that Constellation Brands is
strictly focused on strengthening its financial position while also
emphasizing on its future growth plans. These new credit
arrangements significantly improve the company's credit profile,
providing ample liquidity and free cash flows to meet its capital
needs over the next several years.
This along with a favorable interest rate environment will also
accelerate the company's strategic initiative of expanding foothold
in the U.S wine industry.
Borrowing costs have gone down significantly, marking a record
low, and in turn, facilitating the companies to obtain easy
financing at compelling prices. Corporate bonds are in high demand
as U.S. treasuries are yielding low rates, driving investors toward
the bonds issued by the sound companies.
Debt offers of big companies are being oversubscribed, providing
corporation's the option to price their offerings at lower rates.
Hence, several companies are coming up with debt offerings to
generate interest expense savings by refinancing their outstanding
Constellation Brands ended its fiscal 2012 with a healthy
balance sheet and cash flows. During the fiscal, Constellation
generated $784.1 million of cash from operations compared with
$619.7 million in the previous year.
Apart from this, the company achieved a record free cash flow of
$715.7 million. This enabled the company to reduce debt, as well as
fund stock repurchases and acquisitions. Moreover, the company
anticipates generating a free cash flow in the range of $425
million to $475 million during fiscal 2013.
Constellation Brands is the largest wine company in the world
and commands a dominant position in the premium wine segment in the
U.S. The company is also a leading producer of wines in Canada and
New Zealand. This provides a competitive edge to the company and
bolsters its well-established position in the market.
Moreover, we believe that the company's strategic initiative of
expanding footholds in the U.S wine industry along with focus on
brand building and promotion will accelerate its growth
opportunities while strengthening its market position. Moreover, in
an effort to generate strong margins, Constellation Brands is also
focusing on higher priced segment across all key categories.
However, the company faces intense competition from other
well-established players in the industry, including
). Moreover, Constellation Brands also encounters competition from
local and regional players in the respective countries.
Consequently, this may dent the company's future operating
We currently have a Zacks #3 Rank (short-term Hold rating) on
the stock. Our long-term recommendation on the stock remains
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