BAT faces rating downgrade risk RATINGS agencies

RATINGS agencies are eyeing British American Tobacco (BAT) for a possible credit rating downgrade after the world’s second largest cigarette maker approached US peer Reynolds with a US$47 billion (K145.7bn) takeover offer, one of the largest bids for a foreign company made by a British firm in recent years.
Both Moody’s and S&P Global said the mega-deal has prompted a review of the company’s credit ratings, warning that it could spell a downgrade for the company due to the size of the bid after a flurry of acquisition activity for the company in 2015.
S&P said on Monday that the transaction could result in a one-notch downgrade for the tobacco giant if the terms of deal allow its debt to climb to 4 times its earnings in the first year of the combined business.
Moody’s also raised concerns over the company’s debt and financing, saying a downgrade is unlikely to exceed two notches.
After the bid was revealed Guy Ellison, Investec’s head of equities, said that while the deal makes “perfect sense” the timing is a surprise after the company ran up its debt on smaller scale acquisitions in recent years.
British American Tobacco plans to pay Reynolds’s investors US$56.50 (K175.11) per share in a cash and shares deal, a 20 per cent premium on the Lucky Strike and Camel cigarette maker’s closing share price from October 20, in order to snap up the 57.8 per cent of the company that it doesn’t already own.
– The Telegraph