Moody’s downgrades Starbucks

Moody's Investors Service said it downgraded Starbucks Corp.’s senior unsecured ratings to A3 from A2 and short-term commercial paper rating to Prime-2 from Prime-1.

Moody’s said the downgrade was prompted by Starbucks’ plan to return $15 billion to shareholders through a combination of dividends and share repurchases over a three-year period from 2018 thru 2020. The new shareholder return initiative will be partially funded with additional debt that will result in a material deterioration of credit metrics that will be more representative of the revised ratings.

The agency also views the increase in debt levels to support shareholder returns beyond previous expectations as an adoption of a more shareholder focused financial policy.

The outlook is stable. This concludes the review that was initiated on Nov. 3.

"Starbuck's adoption of a fixed shareholder return target will result in significantly higher debt levels and weaker credit metrics,” Moody's senior credit officer Bill Fahy said in a news release.

"We estimate that the additional debt needed to fund the proposed shareholder returns will result in leverage exceeding 2.2 times and retained cash flow to total debt of around 25%. Moreover, we expect management to return $15 billion to shareholders over the next three years regardless of operating performance."

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