S&P: RJ Reynolds unchanged

Standard & Poor's said the ratings and outlook on RJ Reynolds Tobacco Holdings Inc. (BB+/negative/--) are unchanged by the Quebec Ministry of Revenue's assessment of C$1.36 billion in excise taxes, penalties, and interest against one of RJR's former subsidiaries (following charges related to alleged contraband activities).

It is unclear whether RJ Reynolds will be obligated to compensate its former subsidiary's new owner for the claim. The subsidiary, formerly known as RJR Macdonald, was sold to new owner Japan Tobacco Inc. (AA-/stable/--) in 1999, and its name changed to JTI-Macdonald. At the time, RJR indemnified Japan Tobacco against any unpaid tax liabilities incurred by JTI-Macdonald or its affiliates.

S&P said it believes that Japan Tobacco will contest the Quebec Ministry claim for immediate payment of the C1.36 billion, which pertained to alleged contraband activities from 1990 to 1998, before the sale to JTI.

Following the request for payment by the QMR earlier this month, JTI-Macdonald filed a motion under the Companies Creditors Arrangement Act on Aug. 24 to prevent the ministry from seizing its assets and to suspend the payment obligation. If Japan Tobacco is unsuccessful in its appeal, it is unclear whether RJR will be required to compensate Japan Tobacco for this claim under the terms of the indemnification, which are not publicly available.

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