OREANDA-NEWS. Fitch Ratings has assigned a 'BBB' rating to Mondelez International, Inc.'s (Mondelez) issuance of CHF400 million in senior unsecured fixed-rate notes in two tranches: a 98.5- month CHF265 million note with a 1.125% coupon maturing on Dec. 21, 2023, and a 60-month CHF135 million note with a 0.625% coupon maturing on Oct. 6, 2020. Closing is expected in October and proceeds will be used for general corporate purposes including refinancing upcoming maturities.

The notes will not be registered with the SEC; instead, they will be registered for sale only in Switzerland and may be redeemed early at par and in full if changes in tax laws or regulations result in additional payments such as withholdings, duties or assessments. The customary change of control provision at 101% of face value is in place.

The Outlook is Negative. A full list of ratings follows at the end of this release.

KEY RATING DRIVERS

Potentially Heightened Leverage through 2016: The affirmation factors in Fitch's expectations that Mondelez is likely to operate at a gross leverage (total debt-to-EBITDA) range around 3.4x to 3.5x through 2016 as the company exits its coffee business, executes share repurchases, and incurs peak cash restructuring charges. Total debt-to-EBITDA was 3.4x, EBITDA-to-interest expense was 8.7x and FFO adjusted leverage was 5x for the latest 12 months ended June 30, 2015.

The Negative Outlook reflects the risk that heavy restructuring related cash payments combined with share repurchases partially funded by debt could lead to leverage in the high 3x range. Mondelez already completed more than \\$2.1 billion in share repurchases in the first half of 2015 which contributed to a \\$2.6 billion increase in debt to \\$19.3 billion from \\$16.7 billion at the end of 2014.

While Fitch anticipates that Mondelez can achieve the bulk of its \\$1.5 billion annualized cost savings targeted by 2018, which should help replace the coffee EBITDA over time, savings are likely to be skewed to the outer years and may be reinvested in the business or returned to shareholders. Cash restructuring costs over this period are expected to total \\$2.5 billion. Fitch assumes around \\$1 billion cash restructuring costs in 2015 and \\$800 million in 2016. Fitch expects heightened cash costs combined with elevated capex (projected at \\$1.8 billion in 2015 and 5% of sales thereafter) to result in negative free cash flow (FCF) in 2015 and modestly positive FCF in 2016.

Mondelez's coffee business, which is now reported on the balance sheet as assets held for sale, generates EBITDA of approximately \\$600 million to \\$700 million annually with margins in the high teens. Mondelez will hold a 43.5% equity interest in JDE, which will be the world's leading pure-play coffee company, with annual revenues exceeding EUR5 billion (USD5.7 billion). Per the Shareholders' Agreement JDE will distribute the following dividends to Mondelez and Acorn Holdings B.V., parent of DEMB: At least EUR175 million (pro-rated for the first year), at least EUR200 million for the second year, at least EUR225 million for the third year, and 40% of operating profit thereafter.

Scale and Diverse Geographies: Mondelez's ratings incorporate its scale as one of the largest global packaged food companies with approximately \\$30 billion pro forma 2014 net revenue after \\$3.8 billion estimated revenue contribution to JDE. The company is well-balanced geographically with 38% of 2014 net revenue in higher-growth-potential emerging markets and 62% in mature developed markets. Mondelez has substantial scale with No. 1 global market share in biscuits, chocolate and candy as well as No. 2 global share in gum. After the coffee business moves to the JV, the company's revenue from snacks will increase from 75% to 84%, leaving the portfolio slightly better positioned.

Near-Term Top-Line Weakness: Mondelez is experiencing a broad-based global macroeconomic slowdown in its categories which is exacerbated by the currency effects of a strong dollar. In 2014, the company's organic (price/volume/mix) top line in core snacks was only 1.6% and total organic net revenue growth was 2.4%. Global growth in snacks (biscuits, chocolate, gum and candy) per Nielsen Global Data fell below 4% in 2014 from approximately 6% in 2011 and 2012. Fitch believes near-term total organic top-line growth will be in the low single digits, and reported top line currently has a significant currency headwind in 2015 of roughly 12%. If Mondelez continues to lead on higher pricing, volumes could be negatively impacted and put even more pressure on organic growth. Over the long term, Mondelez targets organic net revenue growth at or above industry category growth, and adjusted operating income growth in the high single digits. Fitch estimates top-line growth could be slower than this through the intermediate term, or about 3% annually in Fitch's base case, in 2016 onward.

KEY ASSUMPTIONS
--2015 organic top line grows about 1.5%, which reflects about a 1% reduction due to strategic decisions to improve revenue mix and exit low-margin businesses; reported top line heavily affected by negative currency impact currently estimated at about 12%. This year (2015) excludes a half year of the coffee business, or about \\$1.9 billion revenue; top-line organic growth of 2% to 3% thereafter.
--2015 EBITDA excludes a half year of coffee business, or about \\$325 million.
--Cash restructuring charges of \\$1 billion in 2015 and \\$800 million in 2016.
--Capex at \\$1.8 billion in 2015 and 5% of revenue thereafter.
--FCF negative in 2015 and modestly positive in 2016.
--Total year-end debt estimated at \\$17 billion in 2015 and \\$18 billion in 2016.
--Total debt-to-EBITDA in the 3.4x to 3.5x range in 2015 and 2016.

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

-- If EBITDA tracks below expectation due to a shortfall in expected operating margin improvement or further deceleration in organic top-line growth, or financial policies are aggressive, such as not reducing debt materially from \\$19.3 billion at June 30, 2015 after receiving proceeds from the coffee JV, or the company engages in a large debt-financed acquisition, such that leverage is likely to be consistently above 3.5x.

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

--The Outlook is likely to be revised to Stable if Mondelez sustains organic growth in the low single-digit range; makes substantial progress toward its stated margin improvement which would take EBITDA to or above 2014 levels (with coffee) of \\$5.6 billion and EBITDA margin in the 19% to 20% range, with the company comfortably maintaining leverage in the 3.0-3.5x range by balancing shareholder and debtholder interests.
--Over the long term, leverage consistently in the mid- to high-2x range and FCF above \\$1 billion annually could support a positive rating action; however, this is not anticipated in the near- to intermediate-term.

LIQUIDITY
Mondelez's liquidity at June 30, 2015, includes almost \\$2 billion in cash and equivalents and an undrawn \\$4.5 billion five-year senior unsecured revolving credit facility expiring in October 2018. Mondelez had \\$3.1 billion commercial paper borrowings at quarter end. Upcoming long-term debt maturities are significant with \\$1.8 billion due in 2016 and \\$1.5 billion due in 2017. Fitch believes the company is likely to refinance 2016 and 2017 maturities and today's actions at very low CHF rates are within expectations.

FULL LIST OF RATING ACTIONS

Fitch has the following ratings on Mondelez:

--Long-term Issuer Default Rating (IDR) at 'BBB';
--Senior unsecured debt at 'BBB';
--Credit facility at 'BBB';
--Short-term IDR at 'F2';
--Commercial paper at 'F2'.

The Rating Outlook is Negative.