As one of the world’s largest beverage companies KO operates across a diverse geographic footprint and generates stable and robust free cash flow. Management has expressed support for the high-A ratings profile and targets net leverage of 2-2.5x.

MRQ leverage was below targeted levels to maintain flexibility around a pending tax liability case and earn out payments for Fairlife. The court recently levied a judgment of $6.0 bn against KO, although the case has moved on to the appeals process.

We see a path for KO to maintain stable ratings through the litigation, and note that proceeds from a planned IPO of the company’s African bottling group could help address the liability.

The unfavorable U.S. tax ruling could still result in some leverage creep depending on the ultimate outcome. KO is appealing the ruling, and we expect recent sales growth and proceeds from the planned IPO of the African bottling operations will mitigate the impact of any eventual penalty on the credit profile.

KO has a $6+ bn earn-out payment in 2025 related to the Fairlife acquisition, which will likely bring KO to the new issue market.

Management has expressed interest in expanding its presence over time in the alcoholic beverage category, although to this point the company has limited its involvement to licensing arrangements for its soft drink brands with large-scale brewers and distillers.