TEXT - S&P comments on Altria, Reynolds and Lorillard
Dec 19 - Standard & Poor's Ratings Services said today that the ratings on Altria Group Inc. (BBB/Stable/A-2; parent company of Philip Morris USA), Reynolds American Inc. (BBB-/Stable/--; parent of R.J. Reynolds Tobacco Company), and Lorillard Inc. (BBB-/Stable/--; parent company of Lorillard Tobacco Co.) are currently unaffected by the announcement that their respective operating subsidiaries have reached agreement in principle with 17 states, the District of Columbia, and Puerto Rico (the signatory States) that resolves disputes under the 1998 Master Settlement Agreement (MSA) involving the payment adjustments relating to nonparticipating manufacturers for the years 2003 to 2012. The agreement would result in the tobacco subsidiaries receiving credits against future MSA payments over a period of up to five years, entitle the signatory States to receive a portion of their allocable share of the amounts currently being held in escrow resulting from these disputes, and put into place a new method for calculating the adjustment beginning in 2013. Standard & Poor's views this agreement in principle, which should boost the companies' cash flows over a period ranging from one to five years, as a positive for the three tobacco manufacturers. However, it is uncertain at this point how the companies will utilize the incremental cash flows from the settlement. We believe such incremental cash flows could be at least partially directed toward shareholder payments, potentially share repurchases or a special dividend, and will monitor the companies' intentions.
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