Moody's lifts Reynolds American debt, rates notes Ba1

Moody's Investors Service said it assigned a Ba1 (LGD4, 52%) rating to Reynolds American Inc.'s $1.55 billion senior secured global notes due 2011-2037, upgraded its $2.731 billion senior secured global notes due 2009-2018 to Ba1 (LGD4, 52%) from Ba2 (LGD4, 66%) and upgraded its $550 million senior secured revolving credit facility to Baa1 (LGD1, 5%) from Baa2 (LGD2, 13%).

The agency also upgraded R.J. Reynolds Tobacco Holdings, Inc.'s $69 million guaranteed unsecured notes due 2007-2015 to Ba1 (LGD4, 60%) from Ba2 (LGD5, 74%) and affirmed its $89 million unsecured notes due 2007-2013 at Ba2 (LGD6, 96%).

Reynolds American's Ba1 corporate family and probability-of-default ratings and SGL-2 speculative grade liquidity rating were affirmed.

The outlook is positive.

Proceeds from the new notes will be used to refinance the company's $1.538 billion senior secured term loan.

The agency said the upgrade reflects the change in the company's capital structure, which results in a change in the relative proportion of fully secured bank debt as compared with senior secured notes that only benefit from a pledge of the company's property, plant and equipment and stock pledge in the company's subsidiary, R.J. Reynolds Tobacco Co.

The Ba1 corporate family rating is supported by the company's strong brand portfolio, product innovation, improving profitability and pricing flexibility, offset in part by the continued litigation risk that R.J. Reynolds Tobacco continues to face, Moody's said.

The positive outlook reflects the agency's expectation that the company will maintain its strong profitability and ample free cash flow by successfully implementing its strategy of focusing on several key investment brands, driving further cost reduction and successfully integrating and growing its Conwood and Lane smokeless tobacco businesses.

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