Moody’s is one of the big credit rating agencies that award an ‘investment grading’ for companies and governments alike. A positive Moody’s grading allows the government or company to borrow money at lower interest rates since investors can take comfort in the ability of the company to repay the debt.
The rating agency made some spectacular mistakes in recent years, for example failing to spot the problems with the US mortgage industry in 2008.
However, a rating from the credit rating agency is still the determining factor in issuing corporate debt, and JDE Peet’s likely wants access to the corporate debt markets. With interest rates at historically low levels, companies can finance their operations very cost-effectively using debt instruments.
Debt funding might be a better alternative to the company than raising money through a share sale since the stock price is rather depressed at the moment.
It wasn’t all smooth sailing for the company, however. It seemed they needed to do an amount of restructuring to get the grading. Their press release stated, among other things, Capital restructuring, which relates to the way the shareholdings are distributed.
The Baa3 rating reflects its resilient operating performance during 2020, despite its exposure to the away-from-home channel, its progress in reducing financial leverage and the simplification of its capital structure. JDE Peet’s rating is supported by the strong business profile of the group thanks to the combination of JDE’s market two position in the global coffee industry together with Peet’s Coffee’s solid positioning in the US premium coffee retail segment, benefiting from a strong portfolio of brands and good geographic diversification. The rating is also supported by the company’s strong free cash flow generation and good liquidity. – Press Release
Ultimately, the company managed to scrape through with a Baaa3 rating, which is the lowest rating required to get it into the investment-grade club. I copied a helpful diagram from Moody’s below to illustrate the levels.
