Five-year credit protection on British American Tobacco tightened by 10-12 basis points last week following a court ruling on the size of Altria Group's potential liability in a case for allegedly misleading smokers on the safety of light cigarettes. Credit-default swaps referenced to BAT traded at 85-89bps Wednesday. Protection on Altria, meanwhile started the week at 330bps and dipped as low as 191bps before coming back to 220-230 Thursday, according to a trader. There was good two-way business for BAT credit-default swaps for usual size trades of GBP5 million (USD8 million).
During the week, the Illinois Supreme Court reinstated a reduced appeal bond of USD6.8 billion in Altria's case. The appeal had previously been set at USD12 billion. Even though the appeal is specific to Altria, this is being viewed as positive news for BAT which has its own lawsuit waiting in the wings, noted a credit analyst.
During the week, Moody's Investors Service announced it would not conclude its ratings review of BAT before the corporate decided whether it would make a bid for Tekel, the Turkish national tobacco company. Moody's added it would probably only downgrade the tobacco giant by one notch if BAT made a successful bid that it financed with debt. The market had been worried that Moody's may have downgraded it by two notches and was re-assured by this statement, noted a credit analyst.
Moody's rates BAT Baa1 and has it on watch for downgrade and Altria Baa2 on watch for downgrade. Standard & Poor's rates BAT BBB plus with a stable outlook and Altria BBB plus with a negative credit watch. Fitch Ratings has BAT as A minus with a negative outlook and Altria as BBB with rating watch negative.
Five-Year Mid-Market Protection On BAT
