Fitch Affirms The Central America Bottling Corporation (CBC) Ratings at 'BB+'; Outlook Stable

Fitch Ratings has affirmed The Central America Bottling Corporation's (CBC) ratings as follows:

--Foreign currency long-term Issuer Default Rating (IDR) at 'BB+';

--Local currency long-term IDR at 'BB+';

--USD300 million Senior Unsecured Notes due in 2022 at 'BB+'.

The Rating Outlook is Stable.

KEY RATING DRIVERS

CBC's ratings are supported by the company's long track record of operations as an anchor bottler of the PepsiCo system in Central America, the Caribbean and Ecuador, diversified product portfolio of leading beverage brands across its franchised territories, and broad distribution network. The ratings also benefit from the company's good operating performance, characterized by stable cash flow generation, and solid credit metrics through the cycle. In addition, the company has the implied operative and technical support of PepsiCo which owns 18% of its equity.

CBC's ratings are constrained by the company's higher than historical debt levels as a result of its acquisitions and investment projects, which have been incorporated into the ratings. Additionally, the ratings are limited by the strong competition within the beverage industry, the volatility in the cost of its main raw materials and the exposure of cash flow generation to low-rated countries.

Relevant Position in Core Markets

The company has a relevant market share position in the carbonated soft drink category, which accounts around 63% of its total sales volume, while in other categories such as isotonic, fruit juices, energy drinks and tea, holds the leading position in most of its markets. These market share positions are mainly based on a recognized brand portfolio, and an extensive distribution network, that covers around 431 thousand points of sale and works as an important entry barrier to new competitors. Fitch considers that these elements combined with the management's abilities to design and execute commercial strategies contribute to maintain its business position in the long term.

Exposure to Low-Rated Countries

CBC's ratings reflect the risks associated to the economic and political environment where the company has operations. Its operations in Central America represent around 65% of consolidated sales, where Guatemala (Country ceiling 'BBB-') is the most important operation contributing with around 34% of its total revenues, while the rest of the revenues come from of El Salvador (Country ceiling 'BB+'), Honduras and Nicaragua. The company's Caribbean operations represent around 21% of total revenues being Puerto Rico its most important market with a contribution of around 10% of the total revenues. Jamaica (Country ceiling 'B-'), and Trinidad and Tobago, integrate the other countries in the region. In addition, Ecuador (Country ceiling 'B') contributes with around 15% of the company's total revenues.

Positive Operating Performance

CBC's operating performance has followed a positive trend supported by organic growth and acquisitions despite the challenging market conditions of its operations in Puerto Rico. During the first nine months ended Sept. 30, 2013, the company's net revenues increased 14% to USD894 million when compared to the same period of last year. Excluding the effect of last year acquisition in Ecuador, net revenues increased 5%. Consolidated EBITDA margin improved to 11% for the first nine months as of Sept. 30, 2013 when compared to 10% for last year same figures. Higher price increases and better product mix towards water categories, as well as higher volume across the portfolio contribute mainly to this improvement. Operating results from Puerto Rico, which is a market dominated by modern channel and strong competition, continue showing low profitability levels affecting the consolidating margin of CBC.

Expected Deleverage

Fitch expects that CBC's adjusted gross leverage measured as total adjusted debt to EBITDA will be close to 2.9x at year end 2013 and will gradually decrease to levels around 2.5x in the following years mainly through higher EBITDA generation and modest debt reduction. CBC's total adjusted debt calculated by Fitch reached as of Sept. 30, 2013 USD491 million, out of which USD2.5 million was related to preferred capital. For the last 12 months as of Sept. 30, 2013 the company's total adjusted debt to EBITDA and total adjusted net debt to EBITDA calculated by Fitch were 3.6x and 2.3x, respectively.

Negative Free Cash Flow Generation (FCF)

Fitch expects that CBC's planned capital expenditures of around USD96 million in 2014, would limit its FCF generation (defined as cash flow from operations less capital expenditures and dividends). Fitch estimates that CBC will continue generating stable cash flow from operations (CFO) of approximately USD94 million during 2014. For 2013, Fitch incorporates a negative FCF generation as a result of higher capital expenditures of around USD83 million and USD23 million of dividends.

Strong Liquidity

CBC liquidity position is strong with USD40 million of short-term debt and USD49 million of cash balance and USD132 million of held to maturity investments. In addition, CBC's debt maturity profile is manageable with no significant debt maturities in the next few years. In addition, Fitch expects that CBC will continue evaluating investments or acquisitions in order to strengthen its business portfolio without changing significantly its capital structure and liquidity position in the long term.

RATING SENSITIVITIES

The ratings could be negatively pressured by a downgrade in the sovereign ratings where the company operates, sustained deterioration of its operating results in Puerto Rico, significant debt financed acquisitions, as well as higher debt and leverage ratios due to a decline in its operating results. Factors considered positive to credit quality include a combination of better operating performance, turnaround of the operations in Puerto Rico, positive cash flow generation from higher-rated countries and solid credits metrics on a sustained basis.

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

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 5, 2013).

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=715139

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=816988

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Fitch Ratings
Primary Analyst
Rogelio Gonzalez, [phone]
Director
Fitch Mexico S.A. de C.V.
Prol. Alfonso Reyes 2612
Monterrey, N.L., Mexico
or
Secondary Analyst
Vanessa Villalobos, [phone] x 29
Associate Director
or
Committee Chairperson
Alberto Moreno, [phone]
Senior Director
or
Media Relations
Elizabeth Fogerty, New York, [phone]
[e-mail]