How Molson Coors Slashed Its Debt by More Than 40% Since MillerCoors Deal

Molson Coors Beverage Co. , the maker of Coors Light and Miller Lite beer, shaved roughly $5 billion off its net debt since buying the rest of its MillerCoors LLC U.S. joint venture in 2016.

The Chicago-based brewer’s $12 billion deal, in which it acquired the remaining 58% stake in a joint venture with now-defunct U.K. rival SABMiller PLC, saddled it with a mountain of debt. The move also more than doubled Molson’s annual sales.

Molson’s net debt totaled $6.52 billion at the end of last year. This compares to $11.51 billion at the end of 2016, when it ballooned from $2.51 billion a year earlier due to the transaction, according to data provider S&P Global Market Intelligence.

Molson, which reduced inventory and relied on its cash flow to bring down debt, said its ratio of net debt to earnings before interest, tax, depreciation and amortization stood at 3.1 times at the end of 2021, down from 4.8 times at the end of 2016. The company plans to reduce its leverage ratio to below 3 times by the end of this year.

Chief Financial Officer Tracey Joubert talks about higher cash flows and how better working-capital management helped the company’s deleveraging efforts. This is the fifth part of a series that focuses on how CFOs reduce debt and other costs. Edited excerpts follow.

WSJ: What actions did you take to get Molson’s debt to where it is now?

Ms. Joubert: Reducing our net debt was one of the top capital allocation priorities that we had. Just last week, we actually repaid $500 million of our 3.5% USD notes, which matured on May 1. We really focused on cash. We made sure that we were getting the accounts receivable in. We’ve done a lot of work around working capital to make sure that we are making the best use of payment terms, holding as little inventory as possible last year during the pandemic. The good thing about our company is we do generate a lot of free cash flow. That has helped as we look to pay down our debt.

WSJ: What are your next steps?

Ms. Joubert: As we get closer to debt maturities, like we did this last week, we look if it makes sense to refinance. We look at interest rates. We look at what’s going to give us the best return for our cash. The desire is to improve our investment grade ratings. We’d like to get to the sort of [debt] ratios that we had before the MillerCoors acquisition.

WSJ: How much debt do you have coming due?

Ms. Joubert: We’ve got about a billion dollars due in 2023. And then we’ve got debt that goes out to, like, 2046. About $2.6 billion is due before 2026 and then everything else is beyond that.

WSJ: The Federal Reserve increased interest rates farther last week. How does that affect your debt?

Ms. Joubert: Higher rates impact interest expense. We’ve got a really low cost of funding for the majority of our long-term debt, but we also have pre-issuance hedges to help neutralize the impact of any increase in the U.S. rate. That has certainly helped us. We’ve used fixed or float or cross-currency swaps to help us optimize our interest expense at a time. We’ve got some natural offsets. When interest rates rise, it impacts the liabilities on our pension plan in a favorable way. They help us offset some of the interest rate increases as well.

WSJ: How do you want to improve your credit rating?

Ms. Joubert: I’m just going to go back to the end of 2016, when I became CFO. Since at least 2016, we have been investment-grade. Our long-term credit ratings are BBB- and Baa3, one notch above sub-investment grade. Our desire is actually to increase the investment grade. Being one notch above sub-investment grade is not where we want to be.

WSJ: What advice do you have for other CFOs who are looking to deleverage their businesses?

Ms. Joubert: It’s just having those conversations with the rating agencies and making sure that you align on the targets and then hit the commitments that you’ve made. That’s really critical. We have got low-cost debt and that is because the bondholders out there believe our story and have confidence that we can pay down the debt when it’s due. Delivering what you say you’re going to deliver has been really critical to being able to maintain our investment grade. That helps as well if you want to increase your dividend, do mergers and acquisitions or do share buybacks.

Read the full article.