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Rating Action:

MOODY'S PLACES A2/P-1 DEBT RATINGS OF BRITISH AMERICAN TOBACCO PLC AND ITS GUARANTEED SUBSIDIARIES ON REVIEW FOR POSSIBLE DOWNGRADE

09 Apr 2003
MOODY'S PLACES A2/P-1 DEBT RATINGS OF BRITISH AMERICAN TOBACCO PLC AND ITS GUARANTEED SUBSIDIARIES ON REVIEW FOR POSSIBLE DOWNGRADE

Approximately $ 4 Billion of Debt Securities Affected.

Madrid, April 09, 2003 -- Moody's Investors Service has today placed the A2 long-term senior unsecured and Prime-1 short-term debt ratings of British America Tobacco plc (BAT) and all its guaranteed subsidiaries on review for possible downgrade.

The rating review, which could imply more than one notch rating adjustment, reflects Moody's concerns about the increased litigation risk in the US tobacco industry at a time when the company is contemplating using its current financial flexibility. The review will focus in particular on the following key points:

1.) The perceived increase in risk derived from the possible ramifications for Brown & Williamson (B&W), the 100% owned subsidiary of BAT, as a result of the current Miles case against Philip Morris USA as well as the eventual outcome of the trial brought against B&W itself by the same plaintiffs as in the Miles case.

2.) An analysis of the overall litigation risk profile of B&W.

3.) The extent to which BAT is ring-fenced from any negative financial verdict affecting B&W.

4.) The possible impact of management's intention to potentially deplete part of BAT´s financial flexibility through share buy-backs and a possible debt-financed acquisition as well as on its liquidity risk assessment going forward.

The trial against B&W brought by the same plaintiffs' attorney as in the Miles case against Philip Morris USA is currently scheduled to take place in the same legal jurisdiction of Illinois in March 2004. Although B&W still has the option of seeking a postponement of the trial, Moody's believes that, given the strictness of the Illinois jurisdiction, there is a significant chance that B&W could face a similar outcome if the trial does take place with possible bonding of same magnitude requirements How the bonding issue is resolved for Philip Morris USA should be one of the significant factors that will influence on the degree of risk faced by B&W on the same issue.

Philip Morris USA -- the domestic tobacco subsidiary of Altria -- is currently seeking relief on the requirement of a US$12 billion bond necessary to stay the execution of a judgment against it in the Miles case. Miles is a class-action consumer fraud case tried in Madison County, Illinois in the US. Moody's notes that a possible resolution of the bonding issue for Philip Morris USA could include a cap on bonding requirements that would be passed by the Illinois legislature, a reduction of the bonding requirement by the presiding judge, a reduction of the bonding requirement ordered by a higher court following an interlocutory appeal, or support provided by the parent.

Moody's believes that the Miles case illustrates the difficulties faced by tobacco companies involved in numerous legal claims, such as B&W. The significant share and the longstanding presence of B&W's brands in the US cigarette market make the company an attractive target for litigation. According to Moody's, this factor could increase the risk of B&W facing significant bonding requirements in the future, especially in difficult legal jurisdictions, despite the sometimes strong basis for appeal.

The ratings placed on review for possible downgrade are:

The long-term A2 senior unsecured ratings of all debt issues under BAT plc and its guaranteed subsidiaries.

The Prime-1 short term rating of: BAT International Finance plc, BAT Capital Corporation, Imperial Tobacco Canada Ltd. and BAT Australia Ltd.

Headquartered in London, England, BAT is the world's second largest listed tobacco company after Philip Morris, and significantly bigger than the third-ranked company, Japan Tobacco. BAT´s products are distributed in the USA through its 100% owned US subsidiary, Brown & Williamson. BAT currently has a 15.1% global market share, selling some 777 billion sticks in 2002 in around 180 markets throughout the world. BAT enjoys a leadership position in more than 65 countries through its diverse portfolio of brands, which includes well-established international brands such as Lucky Strike, Kent, Dunhill and Pall Mall. BAT also has interests in cigars and loose tobacco.

Madrid
Carlos Winzer
Senior Vice President
Corporate Finance
Moody's Investors Service Espana, S.A.
(34-91-310-1454)

Paris
Eric de Bodard
Managing Director
Corporate Finance
Moody's France S.A.
33 1 53 30 10 20

No Related Data.
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