Five-year credit protection on Altria Group, which owns Philip Morris USA, tightened to 210 basis points last Wednesday, having traded wider than 300bps the week before, after a Florida appeals court revoked a USD145 billion verdict against tobacco companies, which includes Altria. Default swaps on the name widened by 15bps last Wednesday, standing at 225bps, as a result of technical factors, said a New York-based trader. No single strategy dominated, but the name is widely held by hedge funds, insurers and banks, said the trader.
Christophe Razaire, senior credit officer at Moody's Investors Service in New York, which rates Altria Baa2 and has it on negative outlook, noted that although the corporate is almost continually in the news, the most important factor affecting its rating is the poor dynamics of the tobacco industry. The most significant action the firm could make to improve its rating would be to find a solution to stem the rise of deep discounters with non-brand names, which threaten the group's market share, he said.
Several other factors, including court cases, also have the potential to shift the ratings on the name, said Razaire. One of the most notable is a recent pact by the World Health Organization that requires member countries to implement measures that restrict smoking. The decision is too large to decide how it will impact upon tobacco corporates such as Altria, however the decision has the potential to harm the industry, he said.
Five-Year Mid-Market Protection On Altria
