Fitch Rates General Mills' $1B in Sr. Unsecured Notes 'BBB+'

  Fitch Rates General Mills' $1B in Sr. Unsecured Notes 'BBB+'

Business Wire

CHICAGO -- January 28, 2013

Fitch Ratings has assigned a 'BBB+' rating to General Mills, Inc.'s (General
Mills) $1 billion in senior unsecured notes, including a $250 million three
year floating rate note (FRN), a $250 million three year note and a $500
million 30 year note.

General Mills plans to use the net proceeds to repay a portion of its
outstanding commercial paper (CP). The proposed notes contain a Change of
Control Triggering Event. Upon the occurrence of both a Change of Control and
rating downgrades to below investment grade, unless the company has exercised
its right to redeem the notes, General Mills will be required to make an offer
to purchase the notes at a price equal to 101% of the aggregate principal
amount plus accrued and unpaid interest to the date of repurchase. The notes
will be issued under the company's indenture dated Feb. 1, 1996, as amended.
The indenture contains limitations on liens and sale/leaseback transactions;
however, there are no financial covenants.

SENSITIVITY/RATING DRIVERS:

General Mills' ratings and Stable Outlook incorporate the company's strong
profitability, substantial internally generated liquidity and leading market
positions in key categories. The company has important and defensible brand
equity in major product categories such as cereal, yogurt, ready-to-serve soup
and snacks. General Mills' margins are among the top tier in the sector, which
provides ample financial flexibility. The company's credit strengths are
balanced with its historically high priority for returning cash to
shareholders.

The company's leverage remains adequate for the rating level following General
Mills' primarily debt financed $940 million acquisition of Yoki Alimentos S.A.
(Yoki) in August 2012. Consolidated total debt-to-operating EBITDA was 2.5x
for the latest 12-month (LTM) period ended Nov. 25, 2012, operating
EBITDA-to-gross interest expense was 9.9x, and funds from operations adjusted
leverage was 3.3x. Fitch expects leverage to improve modestly within the
rating category as Yoki's results continue to be consolidated. Fitch also
anticipates that there will be room within the rating category for General
Mills to pursue moderate share repurchase and/or bolt-on acquisition
strategies.

General Mills' annual free cash flow (FCF) after capital expenditures and
dividends averaged more than $650 million annually during the past five years.
Year-to-date FCF was very strong at $619 million, and Fitch expects FCF to
remain above average for the fiscal year. The company has historically
utilized its sizeable FCF primarily for share repurchases but has shown
discipline to pull back after acquisitions. Given the size of the Yoki
acquisition, General Mills plans below-average share repurchases this year
versus historical levels.

Input cost inflation had a negative impact on margins for most packaged food
companies in fiscal 2012, including General Mills. Input costs have moderated
in fiscal 2013 to approximately 3%, which has led to some margin improvement.
Revenue growth in 2013 is expected to be in the mid-single-digit range and
includes growth from both General Mills' established businesses and
contributions from recent acquisitions. U.S. Retail sales have been negatively
affected by declines in U.S. yogurt core (regular and light) cups and
under-representation in the fast-growing Greek yogurt segment. However, the
company is slowly making improvement with many new products launched in fiscal
2013.

Overall liquidity is plentiful and refinancing risk is minimal due to
significant FCF generation and undrawn credit facilities. The company
maintains $2.7 billion of undrawn, unsecured committed credit facilities
consisting of a $1 billion facility expiring in April 2015 and a $1.7 billion
facility expiring in April 2017. The credit facilities contain a financial
covenant that requires a ratio of earnings-to-fixed charges of at least 2.5:1.
General Mills remains in compliance with its covenants.

Total debt was $8.6 billion at Nov. 25, 2012, including $1.9 billion of CP and
$242 million of Class A Limited Membership interests. Upcoming maturities
primarily consist of $700 million 5.25% notes due in August 2013, as well as
$300 million 1.55% notes and $400 million floating-rate notes due in May 2014.
Fitch expects that the company will likely to refinance these notes.

General Mills has a 51% controlling interest in Yoplait S.A.S. and
consolidates the entity. However, General Mills does not guarantee this debt.
Guarantees are provided by certain Yoplait S.A.S. subsidiaries that make up
the vast majority of assets and income of the joint venture. Yoplait S.A.S.'s
alignment with General Mills' core business, its strategic importance and
significant investment all support alignment of the ratings with General
Mills' ratings. This credit facility is structurally superior relative to the
cash flows, but it is a very modest portion of General Mills' capital
structure. The facility has financial covenants including that total net
debt-to-EBITDA shall not exceed 3.00:1.00 and EBITDA-to-net cash interest
shall not be less than 7.00:1.00. Sodiaal, a French dairy cooperative, holds
the remaining interests in each of the Yoplait international entities and has
the option to put a limited portion of its $877.6 million redeemable interest
in Yoplait S.A.S. to General Mills once per year for nine years. If those
payments are necessary, Fitch expects General Mills to finance them with FCF
or modest borrowing.

What Could Trigger A Rating Action

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

A ratings upgrade in the near-to-intermediate term is unlikely but could occur
if the company commits to maintain leverage (total debt to operating EBITDA)
in the low 2x range while generating consistency or growth in FCF.

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

If the company engages in a significant debt-financed acquisition or share
repurchase program, or operating earnings and margins come under severe
pressure, resulting in a sustained period of leverage greater than 3.0x and
weakening FCF.

Fitch has the following ratings on General Mills' and its related entities:.

General Mills, Inc.

--Long-term Issuer Default Rating (IDR) 'BBB+';

--Senior unsecured debt 'BBB+';

--Senior unsecured credit facilities 'BBB+';

--Short-term IDR 'F2';

--Commercial paper (CP) 'F2'.

General Mills Cereals LLC

--Long-term IDR 'BBB+';

--Class A limited membership interests 'BBB+'.

Yoplait S.A.S.

--Long-term IDR 'BBB+';

--Credit facility 'BBB+'.

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.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 8, 2012),

--'Parent and Subsidiary Rating Linkage' (Aug. 8, 2012)

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

Parent and Subsidiary Rating Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685552

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Contact:

Fitch Ratings
Primary Analyst
Judi M. Rossetti, CPA/CFA, +1-312-368-2077
Senior Director
Fitch, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Grace Barnett, +1-212-908-0718
Director
or
Committee Chairperson
Wesley E. Moultrie II, CPA, +1-312-368-3186
Managing Director
or
Media Relations
Brian Bertsch, New York, +1-212-908-0549
brian.bertsch@fitchratings.com
 
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