Fitch Rates Mondelez's $3B Sr. Unsecured Notes 'BBB'

Fitch Ratings has assigned a 'BBB' rating to Mondelez International, Inc.'s (Mondelez) $3 billion senior unsecured notes in the following tranches: $400 million five-year floating rates notes due Feb. 1, 2019, $850 million 2.25% notes due Feb. 1, 2019 and $1.75 billion 4.00% notes due Feb. 1, 2024. The net proceeds will be used to finance the purchase of up to $1 billion of notes maturing in 2031 through 2040 validly tendered and accepted pursuant to a tender offer announced today, and for other general corporate purposes. Fitch believes this issuance will improve Mondelez's maturity profile and will not materially change near-term total debt expectations of approximately $18 billion.

Fitch currently rates Mondelez's debt as follows:

Mondelez International, Inc.

--Long-term Issuer Default Rating (IDR) 'BBB';

--Senior unsecured debt 'BBB';

--Credit facility 'BBB';

--Short-term IDR 'F2';

--Commercial paper (CP) 'F2.'

DEBT ISSUANCE AND TENDER OFFER:

The new notes will have standard investment grade covenants and rank equal to the company's existing and future senior unsecured indebtedness. The notes have a Change of Control provision which requires the company to repurchase the notes at a purchase price of 101 plus accrued interest if there is a change of control concurrent with ratings downgrades below investment grade by each of the three rating agencies.

KEY RATING DRIVERS:

Mondelez is one of the largest global packaged food companies and maintains substantial scale to compete effectively despite losing the diversification from its former $19 billion North American Grocery business which was spun off Oct. 1, 2012. Fitch's expectation is that the company's approximately 40% of sales from geographically diversified emerging markets will help Mondelez generate faster growth than prior to the spinoff over the long term. However, Mondelez has recently incurred a broad based global slowdown in its key categories and lower coffee pricing. These factors led the company to lower its organic net revenue guidance to approximately 4% in 2013 and 4% to 5% in 2014. Partially offsetting the company's stronger long term growth prospects are significant exposure to mature markets in developed Europe (35%) and North America (20%), lower margins than its global peers, higher foreign exchange volatility and the discretionary nature of the snack food category. Mondelez expects to improve margins in North America and Europe by 500bps and 250bps, respectively, over the long term.

Mondelez's ratings reflect its prominent size and scale with more than $35 billion in revenues within the global packaged foods industry, its leading market share positions in most of its categories, and many strong brand equities. The company's business profile, capital structure, financial strategies and expectations for growing free cash flow (FCF) generation support its ratings. The company's top FCF (cash flow from operations less capital expenditures and dividends) priorities include reinvesting in its business, tack-on acquisitions, primarily in developing markets, and returning cash to shareholders.

FCF in 2013 and 2014 will be constrained by heightened capex and cash restructuring payments. Capex will increase to 5% of sales from approximately 4% to support emerging markets growth and restructuring efficiencies associated with the 2012-2014 program. This restructuring program had about $653 million of charges remaining as of Sept. 30, 2013.

Mondelez's ample liquidity consists of its $3.7 billion cash balance at Sept. 30, 2013, as well as its undrawn $4.5 billion five-year senior unsecured revolving credit facility expiring in October 2018. Total debt was almost $20 billion. Fitch expects that Mondelez will be approximately back in line with its previously targeted total debt level of $18 billion after the repayment of $1.8 billion of notes that were due Oct. 1, 2013. In Dec. 2013, Mondelez completed a tender for $3.4 billion of USD notes with maturities in 2017 to 2020, and financed the tender through an issuance of an aggregate principal amount of EUR 2.4 billion of notes. Upcoming long-term debt maturities include $1 billion in 2014, $1.7 billion in 2015 and $1.8 billion in 2016.

Leverage (debt/EBITDA) was 3.5x, EBITDA to interest 5.2x and FFO fixed charge coverage was 2.6x for the latest 12 months ended Sept. 30, 2013. Although leverage is currently high for the rating category, it should improve moderately with the debt repayment mentioned above, as well as margin improvement and EBITDA growth over the intermediate term.

RATING SENSITIVITIES:

Future developments that may, individually or collectively, lead to a positive rating action include:

--Substantial and growing FCF generation, along with leverage (total debt to operating EBITDA) consistently in the mid-2x range and maintenance of conservative financial policies, such as refraining from a high dividend payout and not using leverage for share repurchases;

--Consistently achieving the high end of the company's revenue and earnings guidance.

Future developments that may, individually or collectively, lead to a negative rating action or Negative Outlook include:

--If earnings or cash flow falter significantly or financial policies become more aggressive, such that leverage is consistently in the low to mid 3.0x range with no plan to reduce leverage;

--If the company consistently fails to achieve its long term revenue and earnings guidance.

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

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (August 2013);

--'Fitch Affirms Mondelez's Ratings at 'BBB/F2' on Share Repurchase Announcement; Outlook Stable' (August 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=814038

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Fitch Ratings
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Judi M. Rossetti, CPA/CFA, [phone]
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Fitch Ratings, Inc.
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Director
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