Analysis of Debt
Total Debt (Carrying Amount)
Constellation Brands Inc., balance sheet: debt
US$ in thousands
Based on: 10-K (reporting date: 2022-02-28), 10-K (reporting date: 2021-02-28), 10-K (reporting date: 2020-02-29), 10-K (reporting date: 2019-02-28), 10-K (reporting date: 2018-02-28), 10-K (reporting date: 2017-02-28).
The overall debt profile reflects a period of significant expansion followed by a systematic deleveraging process. Total borrowings increased from approximately $9.24 billion in February 2017 to a peak of $13.62 billion in February 2019, before trending downward and stabilizing at $10.42 billion by February 2022.
- Total Borrowings Trajectory
- A notable upward trend is observed between 2017 and 2019, with total debt growing by roughly 47% over two years. Following the 2019 peak, the total carrying amount of borrowings decreased by approximately 23.7% over the subsequent three years, returning to levels similar to those reported in February 2018.
- Long-Term Debt Composition
- Long-term debt, excluding current maturities, constitutes the vast majority of the company's total debt obligations. This component followed the same trajectory as total borrowings, peaking at $11.76 billion in February 2019 and steadily declining to $9.49 billion by February 2022. This suggests a strategic reduction in long-term leverage during the latter half of the period analyzed.
- Short-Term Liability Volatility
- Short-term borrowings and current maturities of long-term debt exhibit significant fluctuation. Current maturities peaked in February 2019 at $1.07 billion and February 2017 at $911 million, while dropping to as low as $22.3 million in February 2018 and $29.2 million in February 2021. This volatility indicates a non-linear repayment schedule or periodic refinancing of debt obligations.
- Debt Structure Stability
- By February 2022, the debt structure showed a stabilization in total borrowings, with long-term debt representing approximately 91% of the total carrying amount. The shift from the 2019 peak to the 2022 position indicates a reduction in both the absolute volume of debt and a decrease in the reliance on the peak levels of long-term financing seen in the 2019-2020 period.
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Total Debt (Fair Value)
| Feb 28, 2022 | |
|---|---|
| Selected Financial Data (US$ in thousands) | |
| Short-term borrowings | 323,000) |
| Long-term debt, including current portion | 10,345,300) |
| Total total borrowings (fair value) | 10,668,300) |
| Financial Ratio | |
| Debt, fair value to carrying amount ratio | 1.02 |
Based on: 10-K (reporting date: 2022-02-28).
Weighted-average Interest Rate on Debt
Weighted-average interest rate on borrowings: 3.60%
| Interest rate | Debt amount1 | Interest rate × Debt amount | Weighted-average interest rate2 |
|---|---|---|---|
| 1.00% | 300,000) | 3,000) | |
| 0.50% | 323,000) | 1,615) | |
| 4.25% | 1,048,600) | 44,566) | |
| 4.75% | 398,200) | 18,915) | |
| 4.75% | 397,500) | 18,881) | |
| 3.70% | 597,100) | 22,093) | |
| 3.50% | 497,200) | 17,402) | |
| 4.50% | 493,400) | 22,203) | |
| 3.20% | 599,000) | 19,168) | |
| 3.60% | 695,700) | 25,045) | |
| 4.10% | 592,600) | 24,297) | |
| 4.40% | 497,300) | 21,881) | |
| 4.65% | 496,200) | 23,073) | |
| 5.25% | 493,300) | 25,898) | |
| 3.15% | 794,700) | 25,033) | |
| 2.88% | 594,900) | 17,103) | |
| 3.75% | 589,900) | 22,121) | |
| 2.25% | 988,000) | 22,230) | |
| 3.40% | 6,300) | 214) | |
| 3.40% | 13,600) | 462) | |
| Total | 10,416,500) | 375,201) | |
| 3.60% | |||
Based on: 10-K (reporting date: 2022-02-28).
1 US$ in thousands
2 Weighted-average interest rate = 100 × 375,201 ÷ 10,416,500 = 3.60%
Interest Costs Incurred
Constellation Brands Inc., interest costs incurred
US$ in thousands
Based on: 10-K (reporting date: 2022-02-28), 10-K (reporting date: 2021-02-28), 10-K (reporting date: 2020-02-29), 10-K (reporting date: 2019-02-28), 10-K (reporting date: 2018-02-28), 10-K (reporting date: 2017-02-28).
Total interest costs incurred exhibit a non-linear trajectory over the observed six-year period, characterized by a sustained increase from February 2017 to a peak in February 2020, followed by a consistent decline through February 2022.
- Total Interest Costs Trend
- Interest costs incurred rose from US$ 333.3 million in 2017 to a peak of US$ 465.9 million in 2020. This upward trend was followed by a two-year contraction, with costs decreasing to US$ 417.2 million in 2021 and further to US$ 381.7 million in 2022.
- Capitalized Interest Analysis
- Capitalized interest costs, which were not recorded in 2017, emerged in 2018 at US$ 17.4 million and grew steadily to a maximum of US$ 37.2 million in 2020. The subsequent reduction to US$ 25.3 million by 2022 indicates a decrease in the volume of qualifying capital assets under construction during the latter part of the period.
- Interest Expense Patterns
- The interest expense recognized in the period followed a similar pattern to total incurred costs, remaining stable between 2017 and 2018 before increasing to US$ 428.7 million in 2020. By February 2022, this figure had receded to US$ 356.4 million, reflecting a general reduction in the cost of debt servicing or a reduction in the total debt load.
- Relationship Between Incurred and Expensed Interest
- The divergence between interest costs incurred and interest expense widened between 2018 and 2020, peaking in 2020 with a difference of US$ 37.2 million. This gap narrowed in 2021 and 2022, correlating with the decline in capitalized interest costs.
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Adjusted Interest Coverage Ratio
Based on: 10-K (reporting date: 2022-02-28), 10-K (reporting date: 2021-02-28), 10-K (reporting date: 2020-02-29), 10-K (reporting date: 2019-02-28), 10-K (reporting date: 2018-02-28), 10-K (reporting date: 2017-02-28).
2022 Calculations
1 Interest coverage ratio (without capitalized interest) = EBIT ÷ Interest expense
= 666,800 ÷ 356,400 = 1.87
2 Adjusted interest coverage ratio (with capitalized interest) = EBIT ÷ Interest costs incurred
= 666,800 ÷ 381,700 = 1.75
The interest coverage metrics exhibit significant volatility over the analyzed six-year period, characterized by a period of growth peaking in 2019, a severe contraction in 2020, and a subsequent sharp decline by 2022.
- Growth Trend (2017–2019)
- A consistent upward trend is observed during the first three years. The adjusted interest coverage ratio increased from 7.28 in 2017 to a peak of 11.56 in 2019, indicating a strengthening capacity to meet interest obligations relative to operating earnings.
- 2020 Performance Anomaly
- A critical downturn occurred in 2020, with both the standard and adjusted interest coverage ratios turning negative, reaching -1.20 and -1.11, respectively. This indicates that earnings were insufficient to cover interest expenses during this fiscal period.
- Recovery and Subsequent Decline (2021–2022)
- A strong recovery was noted in 2021, with the adjusted ratio returning to 7.02. However, this improvement was short-lived, as the ratio declined precipitously to 1.75 by February 28, 2022, representing the lowest positive coverage level in the observed timeframe.
- Comparison of Interest Coverage Metrics
- The adjusted interest coverage ratio, which accounts for capitalized interest, remains consistently lower than the ratio without capitalized interest from 2018 through 2022. This divergence confirms that the inclusion of capitalized interest increases the total interest burden, thereby marginally reducing the perceived coverage capacity.
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