Fitch Removes Sara Lee's Ratings from Rating Watch Evolving & Affirms at 'BBB/F2; Stable Outlook

Fitch Ratings has removed the ratings of Sara Lee Corporation (Sara Lee) and its wholly owned-subsidiary, Sara Lee/DE Global Finance B.V. from Rating Watch Evolving.

Fitch affirms the following ratings:

Sara Lee Corporation

--Long-term IDR at 'BBB';

--Senior unsecured notes at 'BBB';

--Bank credit facility at 'BBB';

--Short-term IDR at 'F2';

--Commercial paper at 'F2'.

The Rating Outlook is Stable.

Concurrently, Fitch withdrew the 'BBB' Long-term IDR and senior unsecured note ratings from Sara Lee/DE Global Finance B.V. (Global Finance). The 300 million EUR notes were repaid at maturity in March 2012 and no additional debt will be issued at Global Finance.

Sara Lee is very close to completing the plan (announced in January 2011) to divide the company into two independent, publicly traded companies. Remaining Sara Lee will be renamed Hillshire Brands Company (Hillshire or HBH) effective after completion of the spinoff on June 28, 2012. The separation is structured as the tax-free spin-off of the company's international beverage business (D.E. Master Blenders 1753, or DEMB) into a new public company. After the spinoff, Sara Lee will primarily consist of the company's legacy North American Retail and Foodservice businesses while DEMB will primarily be a coffee and tea business which operates predominantly in Western Europe. In conjunction with the spinoff, Sara Lee's Board of Directors declared a $3.00 per share one-time special dividend ($1.76 billion).

Sara Lee's credit ratings reflect the smaller and less diverse company that will consist primarily of a retail branded protein product portfolio with modest diversification from frozen bakery and foodservice. Affirming the current ratings incorporates expectations that the remaining Sara Lee business will be structured with gross leverage (total debt to EBITDA) of approximately 2.0 times (x), adequate liquidity and ample FCF on a long-term basis.

The company is focused on reducing costs and redeploying the savings to support higher advertising, promotion and new product innovation to drive revenue growth. Operating earnings should improve from the resulting sales leverage. Credit positives are balanced with high management turnover which adds execution risk in the near-term for the stand-alone company. Also, recently weak meat volume trends have improved sequentially but are weighed down by underperformance in bakery which is likely to restrict overall volume growth.

Fitch believes Sara Lee's top line growth target of 4 - 5% annually (including 2 - 3% volume growth) by fiscal 2015 is aggressive, even factoring in higher planned advertising and promotional support. However, modestly lower growth should still allow the company to retain its ratings and increase margins from an initial operating margin of 8%. FCF is expected to be positive, estimated at more than $100 million annually, beginning in fiscal 2014. In fiscal 2013 Sara Lee will incur approximately $170 million to $190 million legacy cash obligations that may require a modest increase in debt. Sara Lee plans a 30 - 35% dividend payout ratio and does not anticipate share repurchases in the near term.

Sara Lee's liquidity will be supplemented by the company's cash balance as a stand-alone company of approximately $120 million and its undrawn $750 million committed five-year revolving credit facility expiring in June 2017. Sara Lee does not have any significant debt maturities until the $400 million 2.75% notes mature in Sept. 2015.

A negative rating action could occur if leverage is likely to be sustained above the mid 2x range and/or if long-term FCF generation is not likely. An upgrade is not likely in the near-to intermediate term as the company works to execute on its current strategies. Commitment to leverage well below 2.0x combined with stronger FCF generation could result in a positive rating action over the longer term.

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. 12, 2011)

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229

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Contacts:

Fitch Ratings
Brian Bertsch, [phone]
Media Relations, New York
[e-mail]
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Primary Analyst:
Judi M. Rossetti, CPA/CFA, [phone]
Senior Director
Fitch Inc.
70 W. Madison Street
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or
Secondary Analyst:
Grace Barnett, [phone]
Director
or
Committee Chairperson:
Michael Zbinovec, [phone]
Senior Director