Fitch cuts British American Tobacco to BBB

Fitch Ratings said it downgraded British American Tobacco plc's long-term issuer default rating to BBB from A- and removed it from rating watch negative.

The outlook is stable.

The agency also affirmed Reynolds American Inc.'s issuer default rating at BBB and withdrew the rating.

Fitch said the downgrade follows the completion of the merger between British American Tobacco and its 42%-owned associate Reynolds American.

“BAT now benefits from an enhanced geographic footprint, access to cash flows in different currencies, stronger scope to pursue its Next Generation Products strategy and further opportunities to improve its profit margins thanks to merger synergies. The transaction makes it the largest tobacco company globally,” the agency said in a news release.

“However, it will be burdened by increased leverage, which may remain high and not consistent with BBB category rating medians over the rating horizon despite positive free cash flow (FCF) generation averaging £2 billion a year and our expectation that financial headroom should improve over the rating horizon.”

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