Cott Corp.'s positive momentum, exemplified by continuing improvements in EBITDA, operating margin, and return on assets, has led Moody's Investors Service to raise the company's rating outlook to positive from stable. Toronto-based Cott has also demonstrated stable free cash flow generation, with free cash flow-to-total debt over the last 12 months clocking in at approximately 24%. Moody's confirmed the Ba3 rating on Cott's $125 million secured bank credit facility.
The soft drink maker is supported by strong liquidity with $50 million of availability under its $75 million revolver and an ample cushion under existing covenants. Working capital requirements and capital expenditures are adequately covered by internally generated funds, according to Moody's. But the ratings also reflect the risk inherent in Cott's traditionally acquisitive growth strategy, as well as pressure on the company's volumes due to the general economic downturn and adverse weather conditions. Cott has a 2.6 times leverage multiple measured by total debt of approximately $363 million and a EBITA of approximately $140 million. Cott's interest coverage measured by EBITDA less capital expenditures is approximately 4.3 times. Calls to the company were not returned by press time.
* Heightened business risk, possible management volatility, and revenue recognition policy concerns have led Standard & Poor's to lower Gemstar-TV Guide International's credit rating to BB- from BB. The Pasadena, Calif.-based company had about $233.2 million of debt outstanding on its six-year, $300 million revolver and its four-year, $300 million amortizing term loan as of March 31.
The ratings drop indicates the TV programming guide company's decaying profile, particularly at TV Guide magazine; its difficulty in distributing its interactive programming guide (IPG); and S&P's inadequate confidence in the restoration of previous margin levels and cash flow. Both TV Guide's paid circulation and SuperStar Netlink usage have been waning, which is reflected in the company's declining EBITDA margin. Patent litigation setbacks have also reduced current revenue and cash flow. Furthermore, while Gemstar settled anti-trust charges filed by the Justice Department and a Nasdaq Stock Market panel found that the company met its regulatory filing requirements, a Securities and Exchange Commission's formal investigation is ongoing and continues to be a cause of concern.
S&P expects pressure on Gemstar's margins to continue until the company compellingly redevelops its editorial product, stabilizes magazine circulation, or the company's IPG increases its distribution. Calls to Gemstar were not returned.