OREANDA-NEWS. S&P Global Ratings today raised all ratings on Chicago-based Wm Wrigley Jr. Co. (Wrigley), including the long-term corporate credit rating, to 'A' from 'A-'. The outlook is positive. Wrigley had reported debt outstanding of $4.9 billion as of June 30, 2016.

The upgrade reflects our opinion that Wrigley is now a fully integrated subsidiary of Mars and that it is integral to the group's future strategies, priorities, and reputational risks. We consequently consider that the rest of the group is likely to support Wrigley under any foreseeable circumstances. Our rating action follows the take-out by Mars of Berkshire Hathaway's minority interest in Wrigley via its preferred equity shares and the recent announcement to combine Wrigley with Mars' chocolate segment. As a result, the ratings on Wrigley now reflect our higher expectations of support from Mars. The positive outlook reflects the possibility of an improvement in group creditworthiness if the consolidated group continues to reduce leverage and sustain it at levels that provide increased headroom for releveraging events, most likely possible future acquisitions.

Wrigley's stand-alone credit profile (SACP) reflects our expectations of continued leverage reduction, despite somewhat weaker operating performance and a challenging operating environment. Wrigley's operating margins have contracted over the past two years, and we expect they will remain at these lower levels in the near term, reflecting increased advertising and marketing to improve organic growth and a continued negative foreign currency impact. The adjusted EBITDA margin for the 12 months ended June 30, 2016 was 25.5%, representing a decline of more than 100 basis points (bps) over the past two years. Thenarrowing reflects a combination of factors, including weak performance in China, the negative impact of a stronger U. S. dollar onWrigley's global sales, and increased spending on promotion and marketing to improve sales volumes and defend market share.

Wrigley has recently improved performance in key markets like the U. S. by strengthening its product mix and pricing, and introducing more targeted marketing campaigns, while continuously improving its overall cost structure. We expect these measures will lead to better sales growthbeyond 2016 and a rebound in EBITDA once foreign currency headwinds abate. Moreover, Wrigley remains a strong cash flow generator, and we expect it will continue to generate annual free cash flow of more than $800 million, with which it will repay upcoming bond maturities and reduce debt to EBTIDA to below 3.5x over the next two years. This compares with debt to EBITDA of about 4x for the 12 months ended June 30, 2016.

The positive outlook reflects the possibility that, barring any significant acquisition, sustained lower group-level debt leverage may support stronger creditworthiness.

We could revise the outlook to stable if the group's leverage were to materially weaken because of any future acquisitions, including possibly at Wrigley. We estimate that if Wrigley were to make an acquisition of more than $2 billion, the incremental debt required to fund such a transaction would be large enough to negatively affect the company's leverage and overall credit profile.