Altria's Credit Running Thin
NEW YORK -- Since a crucial legal victory that ended in the scrapping of a $145 billion fine for Philip Morris USA, parent company Altria Group Inc. has dramatically narrowed its credit spreads, according to a Reuters report.
According to MarketAxess, Altria's spreads on its 7 percent notes that are due in 2013 have tightened five basis points after the court decision, the report stated. Altria's spread is currently 83 basis points over Treasuries. Basis points are .01 of a percentage point.
The cost of protecting Altria's debt over five years fell by about 10 basis points to 43. This amounts to $43,000 for every $10 million protected, according to the report.
Altria's swap spreads are still more than 10 basis points wider than any comparable ranked food and beverage company.
According to the report, analysts believe that although the peak of the spread shrink has passed, it has decreased the chance of the spread growing wider as well.
Because the company plans to break off its Kraft Foods Inc. unit after the victory as a means of increasing shareholder's value, "There's a good chance that Altria will redeem or tender some of the Philip Morris debt as a part of the Kraft spin-off process, which would provide an upside event for bondholders," James Goldstein, analyst for CreditSights, told Reuters.
Although Altria has been faced with multiple law suits for its Philip Morris division, Goldstein told Reuters that the business is highly profitable and maintains a strong market share lead.
"They also have growth opportunities in the international markets, especially Asian markets," he added. According to CreditSights, Philip Morris holds 62 percent of the U.S. market share for premium cigarettes and 50 percent of the entire market.
According to MarketAxess, Altria's spreads on its 7 percent notes that are due in 2013 have tightened five basis points after the court decision, the report stated. Altria's spread is currently 83 basis points over Treasuries. Basis points are .01 of a percentage point.
The cost of protecting Altria's debt over five years fell by about 10 basis points to 43. This amounts to $43,000 for every $10 million protected, according to the report.
Altria's swap spreads are still more than 10 basis points wider than any comparable ranked food and beverage company.
According to the report, analysts believe that although the peak of the spread shrink has passed, it has decreased the chance of the spread growing wider as well.
Because the company plans to break off its Kraft Foods Inc. unit after the victory as a means of increasing shareholder's value, "There's a good chance that Altria will redeem or tender some of the Philip Morris debt as a part of the Kraft spin-off process, which would provide an upside event for bondholders," James Goldstein, analyst for CreditSights, told Reuters.
Although Altria has been faced with multiple law suits for its Philip Morris division, Goldstein told Reuters that the business is highly profitable and maintains a strong market share lead.
"They also have growth opportunities in the international markets, especially Asian markets," he added. According to CreditSights, Philip Morris holds 62 percent of the U.S. market share for premium cigarettes and 50 percent of the entire market.