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By clicking “I AGREE” [at the end of this document], you indicate that you understand and intend these terms and conditions to be the legal equivalent of a signed, written contract and equally binding, and that you accept such terms and conditions as a condition of viewing any and all Moody’s inform​ation that becomes accessible to you [after clicking “I AGREE”] (the “Information”).   References herein to “Moody’s” include Moody’s Corporation, Inc. and each of its subsidiaries and affiliates.

 

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Rating Action:

Moody's places British American Tobacco's A3 and P-2 ratings under review for downgrade

21 Oct 2016

London, 21 October 2016 -- Moody's Investors Service, ("Moody's") has today placed on review for downgrade the A3 long term ratings and the P-2 short term ratings of British American Tobacco Plc ("BAT") and its subsidiaries. From a preliminary analysis, any downgrade of the long term ratings is likely not to exceed two notches.

Today's action follows the announcement that BAT has made a proposal to the board of Reynolds American Inc ("RAI") to acquire the outstanding 57.8% of the shares for approximately USD 20 billion in cash and USD 27 billion in BAT's shares, for an enterprise value of approximately USD 60 billion, including USD 13 billion net debt assumed. The transaction would give BAT full ownership of RAI. Financing plans for the transaction have not been made public.

"Our decision to place BAT's ratings on review for downgrade recognises that, while the acquisition will enhance BAT's business profile, it could lead to a significant deterioration in BAT's credit metrics," says Ernesto Bisagno a Moody's Vice President - Senior Analyst and lead analyst for BAT.

"Assuming the acquisition goes ahead, our review will focus on the impact on BAT's brand portfolio, geographic mix, distribution infrastructure, and litigation risk. We will also consider the financial policy of the combined entity and review the debt protection measures that the company could put in place. The review will also assess BAT's plans to finance the transaction and to reduce debt, as well as the likely timetable for cost savings and other synergistic benefits, and the potential for improved operating returns," adds Mr. Bisagno.

A full list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

Today's action reflects the potential deterioration in BAT's credit metrics following the company's proposal to acquire RAI for USD 20 billion in cash, and USD 27 billion in BAT's shares, for an enterprise value of approximately USD 60 billion. The transaction would result in BAT acquiring the outstanding 57.8% shares in RAI.

Pro forma for the acquisition, according to our preliminary calculation, Moody's adjusted leverage at December 2016 would increase to approximately 5.0x, versus 3.2x expected for BAT stand alone.

BAT's A3 issuer rating is currently supported by the company's strong market position as the second-largest tobacco company in the world; its broad geographic diversification, an extensive portfolio of brands, and a strong market position in both developed and developing markets; the strong and predictable cash flow generation underpinned by its brands and the relatively inelastic nature of tobacco demand, with positive price/mix continuing to offset falling volumes.

LIST OF AFFECTED RATINGS

On Review for Downgrade:

..Issuer: B.A.T Capital Corporation

....Backed LT Issuer Rating, Placed on Review for Downgrade, currently A3

....Backed Senior Unsecured Medium-Term Note Program, Placed on Review for Downgrade, currently (P)A3

..Issuer: B.A.T Industries plc

....LT Issuer Rating, Placed on Review for Downgrade, currently A3

..Issuer: B.A.T. International Finance plc

....LT Issuer Rating, Placed on Review for Downgrade, currently A3

....Backed Commercial Paper, Placed on Review for Downgrade, currently P-2

....Backed Senior Unsecured Medium-Term Note Program, Placed on Review for Downgrade, currently (P)A3

....Backed Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently A3

..Issuer: B.A.T. Netherlands Finance B.V.

....Backed Senior Unsecured Medium-Term Note Program, Placed on Review for Downgrade, currently (P)A3

..Issuer: British American Tobacco Hldgs (Netherlands)

....Backed Senior Unsecured Medium-Term Note Program, Placed on Review for Downgrade, currently (P)A3

..Issuer: British American Tobacco plc

....LT Issuer Rating, Placed on Review for Downgrade, currently A3

Outlook Actions:

..Issuer: B.A.T Capital Corporation

....Outlook, Changed To Rating Under Review From Stable

..Issuer: B.A.T Industries plc

....Outlook, Changed To Rating Under Review From Stable

..Issuer: B.A.T. International Finance plc

....Outlook, Changed To Rating Under Review From Stable

..Issuer: B.A.T. Netherlands Finance B.V.

....Outlook, Changed To Rating Under Review From Stable

..Issuer: British American Tobacco Hldgs (Netherlands)

....Outlook, Changed To Rating Under Review From Stable

..Issuer: British American Tobacco plc

....Outlook, Changed To Rating Under Review From Stable

The principal methodology used in these ratings was Tobacco Industry published in November 2014. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Ernesto Bisagno
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Marina Albo
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

​
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