Five-year credit protection on Altria Group, the parent of Philip Morris USA, blew out 110 basis points last Wednesday following a court decision which reevaluates the company's tobacco bond liability. Credit-default swaps on the name traded as wide as 350bps last Wednesday, compared with 240bps the week before, according to a New York-based trader. The leap occurred in spite of a slow down in trades as the market moves in to the summer slowdown, he added.
Credit protection on Altria was rocked after an Illinois appellate court judge ruled that a judge did not have the authority to slash the USD12 billion bond Philip Morris was ordered to post while appealing a verdict that it deceived smokers about the safety of light cigarettes. Credit-default spreads had tightened on the previous ruling (DW, 6/1). Uncertainty over whether Altria will be forced to post the bond, which the company has previously stated could bankrupt Philip Morris, has driven spreads wider, he explained.
Christophe Razaire, senior credit officer at Moody's Investors Service in New York, which rates Altria Baa2, said the ratings agency put it under review for a possible downgrade following the news. Any bond requirement placed on Philip Morris that puts more constraint on the company than already thought will add downward pressure to the rating, he said.