Fitch Ratings has assigned a 'BBB+' rating to Coca-Cola Enterprises, Inc.'s (NYSE: CCE) newly issued 350 million Euro 2.00% senior unsecured notes due Dec. 5, 2019. The Rating Outlook is Stable.

The new notes rank pari passu with CCE's existing senior unsecured indebtedness. The notes are being issued under the company's fiscal agency agreement effective Aug. 2, 2012. Significant covenants include, but are not limited to, limitations on liens and restrictions on sale-leaseback transactions. The notes are redeemable by CCE subject to a make-whole provision. CCE had approximately $3.2 billion of debt at June 29, 2012.

CCE plans to use the net proceeds of this offering for general corporate purposes, which may include refinancing of commercial paper, share repurchases, and the repayment of indebtedness. At June 29, 2012, CCE had $396 million of debt maturities over the next 12 months, including $166 million of commercial paper. The majority of CCE's debt obligations remain dollar-denominated. However, today's issuance helps narrow the currency mismatch between the firm's debt balances and its cash flow.

Rating Rationale

CCE's ratings reflect the company's exclusive right to manufacture, sell and distribute Coca-Cola brand beverages within its territories in Western Europe where Coca-Cola products have the number 1 share in non-alcoholic ready-to-drink products. Ratings are further supported by the company's free cash flow (FCF) generation, healthy operating margins, and net debt-to-EBITDA leverage target of 2.5 times (x) to 3.0x. Fitch views the lower end of management's target as more in line with the firm's 'BBB+' rating.

CCE is managing through the difficult economic environment in Western Europe as the firm's EBITDA margin for the latest 12 months ended June 29, 2012 was 16.4% versus 16.3% for the year ended Dec. 31, 2011. During the first six months of fiscal 2012, CCE successfully offset a 2.5% increase in cost of sales per case with 3% net pricing per case. Volumes for the period declined 3.5% due mainly to unfavorable weather. CCE expects to generate $475 million to $500 million of FCF during fiscal 2012 which Fitch believes is achievable.

Uncertainty surrounding the funding of the potential acquisition of Coca-Cola Erfrischungsgetraenke AG from The Coca-Cola Company (TCCC) is also factored into ratings. Following TCCC's acquisition of CCE's North American business in October 2010, CCE was granted the right to purchase the German bottler by May 2013. Fitch expects the price to be significant, given the size of the German market, but a fair value has yet to be determined.

Credit Statistics:

CCE's credit metrics are in line with Fitch's expectations. At June 29, 2012, total debt-to-operating EBITDA was 2.4x, funds from operations (FFO) adjusted leverage was 3.7x, and operating EBITDA-to-gross interest expense was 14.5x. At Dec. 31, 2011, these credit statistics were 2.2x, 15.9x, and 3.5x, respectively. Total debt-to-operating EBITDA pro forma for the debt issuance is approximately 2.7x.

FCF for the LTM period ended June 29, 2012 was $282 million, with the majority being used for share repurchases. Fitch would expect CCE to become more conservative with stock buybacks if there is significant deterioration in operating performance or a debt-financed acquisition of TCCC's German bottler.

Liquidity, Covenants and Guarantees:

At June 29, 2012, CCE had $1.4 billion of liquidity inclusive of $422 million of cash and full availability under the firm's $1 billion multi-currency credit facility expiring in August 2014. The credit facility requires that CCE's net debt-to-total capital ratio does not exceed 75%. Fitch estimates that this ratio was 30% at June 29, 2012, providing CCE substantial cushion under this covenant.

CCE's Coca-Cola Enterprises (Canada) Bottling Finance Company subsidiary currently has $213 million Swiss franc unsecured notes due March 13, 2013. TCCC's wholly-owned Coca-Cola Refreshments USA, Inc. subsidiary inherited the guarantee of these notes when TCCC purchased CCE's North American bottling operations. The rating for these notes is based on Coca-Cola Refreshments USA, Inc.'s IDR of 'A+'. CCE's other debt is not guaranteed by TCCC or any of its subsidiaries.

What Could Trigger a Rating Action?

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

--Maintaining leverage below targeted levels of net debt-to-EBITDA of 2.5 times (x) to 3.0x;
--TCCC acquiring a significant equity stake in CCE.

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

--Persistent declines in volumes and material margin compression;
--A material increase in leverage due to debt-financed share repurchases;
--A material increase in leverage due to the debt-financed acquisition of TCCC's German bottler concurrent with Fitch's expectation that credit metrics would not improve within a 12- to 18-month time frame post-transaction.

Fitch currently rates CCE and its subsidiary as follows:

Coca-Cola Enterprises, Inc.
--Long-term IDR 'BBB+';
--Short-term IDR 'F2';
--Bank credit facility 'BBB+';
--Senior unsecured notes 'BBB+';
--Commercial paper 'F2'.

Coca-Cola Enterprises (Canada) Bottling Finance Company
--Long-term IDR 'BBB+';
--Guaranteed senior unsecured notes 'A+'.

The Rating Outlook is Stable.

Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Disclosure: Veronique Morali, vice chairman of Fitch Group, Inc. and a member of its board, is also a member of the board of Coca-Cola Enterprises, Inc. Ms. Morali does not participate in any Fitch rating committees, including that of Coca-Cola Enterprises, Inc.

Applicable Criteria and Related Research:
--'Corporate Rating Methodology', dated Aug. 11, 2012;
--'Parent and Subsidiary Rating Linkage', dated Aug. 12, 2011.

Applicable Criteria and Related Research:
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229
Parent and Subsidiary Rating Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647210

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