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McCormick & Company, Incorporated -- Moody's rates McCormick's new senior unsecured notes Baa2; outlook is stable

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Rating Action: Moody's rates McCormick's new senior unsecured notes Baa2; outlook is stableGlobal Credit Research - 08 Feb 2021New York, February 08, 2021 -- Moody's Investors Service, ("Moody's") assigned a Baa2 rating to McCormick & Company, Incorporated's ("McCormick") US dollar denominated senior unsecured notes with tenors of 5 and 10 years. Net proceeds will be used for general corporate purposes and primarily for the refinancing of a portion of the company's outstanding commercial paper borrowings. All other ratings for the company, including the Baa2 senior unsecured and Prime-2 commercial paper ratings remain unchanged and the outlook remains stable.The refinancing addresses the commercial paper borrowings that were used to finance the recent Cholula and FONA acquisitions and thus improve liquidity. The acquisitions increased leverage meaningfully but are enhancing McCormick's scale and market position in growing categories. Moody's believes McCormick will quickly reduce debt and successfully integrate both companies, which are in two separate business segments (Consumer and Flavor Solutions). As of the fiscal year ended November 30, 2020, McCormick's Moody's adjusted debt to EBITDA stood at 4.4x, and Moody's estimates that pro-forma for the acquisitions of FONA and Cholula, McCormick's Moody's adjusted debt to EBITDA will increase to 4.7x, which is slightly higher than Moody's expectations for the company at the current rating level. However, with $1 billion in senior unsecured notes maturing in the next two years (3.9% senior notes due 7/15/21 and 2.7% senior notes due 8/15/22), McCormick should be able to quickly reduce its leverage back below 4.5x.The following ratings/assessments are affected by today's action:New Assignments:..Issuer: McCormick & Company, Incorporated....Senior Unsecured Notes, Assigned Baa2RATINGS RATIONALEMcCormick's Baa2 senior unsecured rating reflects the company's strong global market position in multiple cooking ingredient product categories and a worldwide leading share in herbs and spices. The rating also reflects the company's good profitability, relatively predictable operating cash flows, and solid long-term growth fundamentals. The rating further reflects McCormick's moderate size compared to other investment grade food companies and high pro forma leverage.McCormick's credit position is supported by its stated commitment to maintain an investment grade profile and to curtail share repurchases until it achieves its net leverage target of 2x (company calculation; 4.1x pro forma for Cholula and FONA acquisitions).However, McCormick has operated above the target leverage level for multiple years following the Reckitt Benckiser food division purchase for $4.2 billion in 2017, and Moody's views a reduction to the target leverage level as unlikely for at least the next two years.Moodys expects McCormick to benefit from the proliferation of diverse food choices and changing consumer food habits including a focus on healthy foods since these trends should enhance demand for a wide variety of seasonings and flavorings. Consumer acceptance of some healthier foods has been hindered by taste concerns that seasonings and flavorings can help overcome.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe stable outlook reflects Moody's view that McCormick will focus on deleveraging. Moody's expects McCormick to use its post-dividend free cash flow to repay debt and reduce its Moody's adjusted debt to EBITDA to below 4.5x in the next 12 to 18 months. The stable outlook also reflects Moody's expectation of a successful integration of the acquired FONA and Cholula assets.Ratings could be upgraded if McCormick sustains retained cash flow to net debt above 17% and maintains stable operating performance and market share in key segments.Ratings could be downgraded if there is a deterioration in operating performance, if there is an unfavorable shift in financial policy, or if debt/EBITDA is sustained above 4.5x.The principal methodology used in these ratings was Consumer Packaged Goods Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1202237. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.McCormick & Company Incorporated, headquartered in Sparks, Maryland, is a global leader in the manufacturing, marketing and distribution of spices, herbs, seasonings and other flavors. Products are sold to the retail, foodservice, and industrial segments. Sales for the publicly-traded company fiscal year ended on November 30, 2020 were $5.6 billion.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Frank Henson Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 John E. Puchalla, CFA Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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