Moody’s raises Vector

Moody’s Investors Service said it upgraded Vector Group Ltd.'s corporate family rating to B1 from B2 and the probability of default rating to B1-PD from B2-PD. The agency also raised the rating on the senior unsecured notes due 2026 to B3 from Caa1 and affirmed the Ba3 rating on the company's senior secured notes due 2029. Vector's SGL-1 speculative grade liquidity rating is unchanged. The outlook was changed to stable from positive.

“The upgrade reflects Vector's improved operating performance, stable free cash flow, and lower leverage. Market share gains and growing earnings have allowed the company to generate consistently positive free cash flow since the 50% dividend cut in 2020. Vector's market share has improved to 5.5% as of September 2023 from around 4% in 2021, continuing a long-term trend toward higher market share and driving lower leverage. Vector captured a significant share vacated by KT&G when it exited the U.S. tobacco market and from consumers downtrading into Vector's discount and deep discount products in response to rising inflation.

“Moody's expects that Vector will retain its market share above 2021 levels but expects some share loss as inflation moderates and competition for a declining consumer base for combustible cigarettes remains intense,” the agency said in a press release.

The stable outlook reflects an expectation that Vector's sales and EBITDA will stay stable over the next 12 to 18 months as it keeps recent market share gains captured from the exit of a competitor in the deep discount market. The outlook also reflects the view that Vector will sustain debt-to-EBITDA leverage below 4x, deliver more than $60 million of free cash flow, and not raise shareholder distributions relative to earnings, the agency said.

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