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DUFF & PHELPS DOWNGRADES RJR NABISCO

 NEW YORK, Oct. 28 /PRNewswire/ -- Duff & Phelps Credit Rating Co. has downgraded RJR Nabisco, Inc.'s senior debt to "BBB-" (Triple-B- Minus) from "BBB" (Triple-B), subordinated debt to "BB" (Double B) from "BB+" (Double-B-Plus), and outstanding commercial paper to Duff 3 from Duff 2. The company has been removed from Rating Watch, where it was placed on April 2, 1993. The "B+" (Single B-Plus) rating on RJR Nabisco Holdings Corp.'s outstanding preferred stock issues remains unchanged. Approximately $8.0 billion of senior debt, $2.0 billion of subordinated debt, and $1.2 billion of commercial paper are affected.
 The downgrade reflects the significant decline in cash flow from RJR's domestic tobacco operations that resulted from Philip Morris' (PM) decision to reduce prices on its premium brands. As a result of this loss in cash flow and a more focused effort to grow RJR's other businesses, debt reduction going forward is projected to be materially less than in the recent past.
 The rating reflects D&P's expectations that RJR will face limitations on future flexibility in domestic pricing, fairly sizable increases in federal excise taxes, and continuing declines in its domestic tobacco volume. It also takes into account management actions to rein in costs and stabilize cash flow from domestic tobacco operations. A lack of success in meeting these targets in the near term or a further deterioration in domestic tobacco pricing levels will likely result in a further downgrade.
 In the third quarter of 1993, domestic tobacco sales declined 29 percent to $1.1 billion and business unit contribution (operating income before amortization of trademarks and goodwill) decreased 64 percent to $201 million. This is the first full quarter reflecting the impact of PM's pricing actions. Business unit contribution for domestic tobacco in 1992 was $2.1 billion, significantly above the $1.5 billion for the latest 12 months. Rebuilding cash flow from domestic tobacco will require sharp reductions in advertising and promotion outlays as well as other expense reductions.
 D&P's near-term outlook remains negative considering the fundamental change that has occurred in the domestic tobacco industry, where annual price increases are no longer a given and market share has become the critical variable. Uncertain competitive actions are now a risk that was not present in this normally stable business. Partially offsetting these concerns are continued growth from food and international operations, planned steps to substantially reduce expenses, lower interest expense resulting from debt repayment and debt refinancing, adequate liquidity, and the expectation that internally generated cash flow will be sufficient to fund capital requirements and service debt.
 -0- 10/28/93
 /CONTACT: Thomas P. Razukas, CFA of Duff & Phelps Credit Rating Co., 212-908-0223/
 (RN)


CO: RJR Nabisco, Inc. ST: North Carolina IN: FOD TOB SU: RTG

TS -- NY102 -- 8007 10/28/93 14:06 EDT
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Publication:PR Newswire
Date:Oct 28, 1993
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