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S&P Ratings says the newly signed regulatory bill will change the tobacco industry's competitive landscape and raise future costs
Jump to full article: Business Week/Bloomberg, 2009-07-01
Author: Elena Serdyuk
Intro: All of these policies may in our view alter the competitive environment in the industry by hindering new product development, putting up barriers to entry, and raising the overall cost of doing business.
Philip Morris USA, the largest U.S. tobacco manufacturer, has stated its support for the bill, while R.J. Reynolds and Lorillard, the second- and third-largest industry players, opposed it. Competitors have criticized Philip Morris, claiming that the sales, marketing, and advertising restrictions would help the company maintain its market share.
Despite the broad potential effects of the FDA regulations, we don't expect the bill's passage to have an immediate impact on our ratings and outlook on the largest-rated tobacco manufacturers or on tobacco settlement-backed securitizations (structured transactions secured by payments from participating manufacturers under the 1998 Master Settlement Agreement [MSA]). In addition, we don't expect to make changes to our current criteria assumptions for tobacco settlement-backed securitizations as a result of the legislation. Our ratings on all such securitizations currently have negative outlooks or are on CreditWatch negative, and we believe our existing assumptions adequately address the risks inherent in these transactions. . . .
We think the overall litigation risk in the tobacco industry will remain significant.
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