S & P Revises Bat Outlook To Negative

S&P also affirmed the ratings on related entities.

The ratings on BAT reflect the strength of BAT's cash-generative tobacco business, its weaker financial services activities (including Farmers Group Inc. in the US and UK-based Eagle Star) and its overall robust financial profile. An S&P statement said the outlook revision to negative reflects concerns about the increasing pace of US litigation claims against BAT's US tobacco subsidiary (Brown & Williamson), and the US tobacco industry in general.

It is consistent with other negative outlooks on tobacco companies with a large exposure to the US market, S&P said. Tobacco manufacturers, including BAT, face an increasing number of legal and potential regulatory challenges (mainly in the US) over health and addiction issues which increases business risk. The future impact of these legal claims, if any, is currently impossible to quantify, the agency said.

 

S&P said BAT has maintained a robust financial profile (with total debt to capital of 37 per cent at December 1995) despite increased capital expenditures and debt-financed acquisitions.

Large debt-financed acquisitions are possible, but are not factored into current ratings, S&P said.