We rarely go into individual corporate rating actions on the blog, but bear with me. Today Heineken was rated Baa1, BBB+ by Moody’s Investor Service and Standard & Poor’s respectively. Not exciting, and a non-contentious rating. So why is it of interest ?
Well, for the previous 25 years of my career this large corporate has not had a credit rating, and has decided at last to join the vast majority of debt issuers by having a rating. Rene Hooft Graafland, Heineken Executive Board member and CFO, commented “the award of these credit ratings underlines our commitment to transparency and diversification of our funding sources”. Now one could argue that given the company has been going for over 150 years, and has issued reasonably regularly in recent years, it is a bit late to the party. Why now?
Heineken was previously able to access the credit markets without a rating as its long history and name recognition in Europe gave it a technical boost. It was perceived by retail investors to be a good credit, on the strength of its well known brand and its relatively conservative financial profile, and so had no need to involve rating agencies. If anything, there was the risk of the company obtaining a rating below the market’s perceived credit risk.
On a simple front acquiring a rating increases the number of investors who will buy the deal, from unsophisticated index funds who buy anything in indices (now it’s rated its debt will enter various indices) to other investors who are rating constrained, or unable to do credit analytical work themselves because of their small scale, and international investors who are not as bekend (au fait) with the credit as they would like, and appreciate the validation of the rating agencies.
However, I think there is an emerging, more potentially significant underlying message. Given the collapse in credit worthiness of many European sovereign states, I think that corporates are very keen not just to show their relative attraction versus each other to source cheap funding, but to make the point that with the help of the rating agencies they can be perceived as a home for previously “risk free” money that was once allocated to government debt.