Moody's upgrades Reynolds

Moody's Investors Service said it upgraded Reynolds American Inc.'s corporate family and probability-of-default rating to Ba1 from Ba2 and $2.938 billion senior secured global notes due 2007-2018 to Ba2 (LGD4, 66%) from Ba3 (LGD4, 66%) and affirmed the speculative grade liquidity rating at SGL-2 and senior secured bank loan facilities at Baa2 (LGD2, 13%).

The agency also upgraded R.J. Reynolds Tobacco Holdings, Inc.'s $161 million guaranteed unsecured notes due 2007-2015 to Ba2 (LGD5, 74%) from Ba3 (LGD5, 73%) and $89 million unsecured notes due 2007-2013 to Ba2 (LGD6, 96%) from B1 (LGD6, 96%).

The outlook is positive.

The agency said the upgrade reflects the diminished litigation risk inherent in the company's tobacco business, the early integration success of Conwood, the positive contribution by Brown & Williamson to Reynolds American's overall market position and Moody's expectation that the company will continue to improve its free cash flow and maintain strong credit metrics.

The Ba1 corporate family rating is supported by the company's strong brand portfolio, product innovation, improving profitability and pricing flexibility, Moody's said, offset in part by the litigation risk that R.J. Reynolds Tobacco continues to face, the declining cigarette per capita consumption trends in the United States and the threat of additional anti-smoking laws, regulations and excise taxes.

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