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DISCOUNT WAR WON'T HURT TOBACCO RATINGS, FITCH SAYS -- FITCH FINANCIAL WIRE --

 NEW YORK, April 2 /PRNewswire/ -- A 40 percent decline in profitability similar to that forecast today by Philip Morris & Co. would not significantly hurt credit quality at domestic tobacco producers, Fitch says. However, the extent of this damage to individual companies will depend on their reliance on the domestic tobacco market.
 Fitch affirms its ratings on RJR Nabisco, Inc. ('BBB' senior debt), B-A-T Industries Plc ('A+' senior debt), and Loews Corp. ('AA' senior debt) in light of potential changes in the tobacco industry prompted by Philip Morris' new strategy.
 Early today, industry leader Philip Morris announced a program to aggressively pursue market share for its coveted Marlboro brand. The company estimates that lower prices and increased promotional spending could result in a 40 percent decline in domestic tobacco profit in 1993. If combined with increased market penetration of discount cigarettes, proposed excise tax hikes and elimination of tobacco companies' advertising tax deductions, a similar drop in profitability industry- wide would negatively impact credit quality.
 In 1992, Philip Morris' interest coverage was 7.6 times (x). Pro forma for a 40 percent decline in domestic tobacco profits and flat volume, interest coverage would decline to 6.1x. While lower, such a drop would not seriously erode bondholder protection.
 Not all companies are as vulnerable to an earnings drop as Philip Morris, which until now was a reluctant player in the discount segment. However, using a 40 percent decline and flat volume growth as a severe stress scenario, RJR Nabisco, Inc.'s ('BBB' senior debt) interest coverage would decrease to 1.9x from 2.5x, while American Brands' coverage would slip to 5.7x from 6.5x. The producer most at risk appears to be Liggett, a Brooke Group subsidiary, because it has no profitable businesses outside domestic tobacco operations. Further, while industry volume declined by 0.4 percent in 1992, Liggett saw a 10.8 percent drop, leading to this week's termination of its two top officers.
 Historically, the tobacco industry has had higher-than-average coverages for industrial companies in similar rating categories due to persistent concerns over tobacco litigation as well as the longer term gradual decline in smoking in the U.S. However, court cases have been decided in favor of the tobacco companies, and smoking declines have moderated. In fact, new figures show that smoking rose in 1991 for the first time in 25 years.
 -0- 4/2/93
 /CONTACT: Thomas W. Hoens of Fitch, 212-908-0569/


CO: ST: IN: TOB SU: RTG

SH -- NY054 -- 2565 04/02/93 13:57 EST
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Date:Apr 2, 1993
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