Five-year credit protection on Altria Group, the parent of tobacco manufacturer Philip Morris USA, snapped in last week on the back of positive news regarding the subsidiary's litigation troubles. Credit-default swaps were trading at 220 basis points last Wednesday, in from 320bps where they were bid the week before, said a New York-based trader.
Protection on the name has been volatile for several months because of the corporate's potential liability for allegedly misleading smokers on the safety of its light cigarettes.
Tightening on the name was the result of a favorable decision by the Illinois Supreme Court, which agreed to hear an appeal on a USD10.1 billion verdict against Philip Morris, explained the trader. A feeling that the majority of litigation against the firm is now in the past encouraged trading, which was dominated by Wall Street traders rather than client accounts, he said. Protection is likely to continue to move in and may tighten to around 150bps, he predicted.
Standard & Poor's rates Altria BBB plus and has the name on negative outlook. It removed the firm from CreditWatch on Sept. 18. Nicole Delz Lynch, analyst in New York, said the corporate's removal from CreditWatch followed a decision by the Supreme Court of Illinois to reinstate a lower bond of USD6 billion, compared with a previous USD12 billion bond requirement pending a favorable resolution of the dispute. The negative outlook reflects concerns over the health of the U.S. cigarette market as well as ongoing litigation risks, she said.
Five-Year Credit Protection On Altria
