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Moody's: Tobacco firms unaffected
The Big Four tobacco companies face additional legal uncertainty now that a U.S. appeals court has questioned the antitrust exemption of laws related to the 1998 tobacco settlement between the companies and the states, says Moody's Investors Service in a new report. But the agency adds that - unlike the securitizations backed by tobacco settlement payments placed under review on Friday - Moody's sees no near-term threat to the tobacco companies' ratings.
The decision by the U.S. Court of Appeals for the Second Circuit in Freedom Holdings v. Spitzer called into question New York's state law designed to "level the playing field" between manufacturers who participated in the settlement and those who did not, giving non-participants a significant cost advantage. Moody's says the rationale used by the influential court in its decision could be followed in other circuits, although this would take time.
"Because developments will be slow and the most likely ones for now are credit neutral, the decision has no immediate rating implications for tobacco companies," says Moody's vice president and senior credit officer Christophe Razaire, author of a report on the decision.
"If the trial court finds in favor of the plaintiffs and the statute is indeed stayed, the immediate effect on ratings would be largely neutral," says Razaire. "While a stay in New York would increase competitive pressure, as costs for the non-participating manufacturers go down, this negative should be balanced by a drop in MSA payments."
The so-called Big Four tobacco companies are Philip Morris USA, parent company Altria rated Baa2; Brown & Williamson, parent company BAT, rated Baa1; R.J. Reynolds, rated Ba2 senior secured; and Lorillard, parent company Loews, rated Baa1.
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