Altria's debt rating under review

Its Philip Morris unit fights $10 billion cigarette ruling

March 25, 2003|By BLOOMBERG NEWS

NEW YORK -The three major credit rating organizations have placed Altria Group Inc. under review after its Philip Morris USA tobacco unit was ordered to pay $10.1 billion for deceiving customers by advertising "light" cigarettes as less harmful.

Illinois Circuit Judge Nicholas Byron issued his verdict Friday, ordering the world's largest cigarette maker to pay $7.1 billion in compensatory damages, $3 billion in punitive damages and requiring it to post a $12 billion bond.

Standard & Poor's attributed its review of the company's debt rating to the uncertainty about the amount of the bond Philip Morris would have to put up and the case's final resolution. Altria and its Kraft Food Inc. subsidiary were placed on credit watch with negative implications.

Standard & Poor's has an "A" rating on Philip Morris' and Kraft's corporate credit and A-1 on their commercial paper. Altria owns 84 percent of Kraft, the No. 1 U.S. food company.

Fitch Ratings also placed a negative watch on Altria's and its subsidiaries' "A" senior unsecured credit and "F1" commercial paper.

Moody's Investors Service placed the long and short-term ratings of Altria Group and Kraft under review for possible downgrade. Moody's has rated both companies' senior unsecured debt at "A2."

Philip Morris had about $23.3 billion in debt Dec. 31, including $14.4 billion at Kraft, Standard & Poor's said. The price on Altria's 7 percent bond due July 15, 2005, rose 23 cents to $108.50, and its yield declined to 3.137 percent from 3.243 percent.

The lawsuit, filed on behalf of 1.1 million smokers in Illinois, was the first class action case involving low-tar cigarettes to reach trial.

Shares of New York-based Altria shares fell $1.45 to close at $33.59. Kraft fell 75 cents to $30.05. R.J. Reynolds Tobacco Holdings Inc., the second-biggest U.S. cigarette maker, fell $1.78 to $34.72.

Investors have expressed concern that a loss in Illinois may lead to a series of expensive judgments. Sixteen similar suits are pending in other states against Philip Morris, R.J. Reynolds and Brown & Williamson.

Two of the class action lawsuits will be tried in the same Illinois court as the case decided last week, though with different judges.

The cigarette maker said Friday that it would ask an appellate court to block Byron's decision, and also would appeal the verdict and the ruling that certified the case as a class action. Philip Morris has 30 days to appeal the $12 billion bond, analysts said.

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