Fitch Affirms Philip Morris' Ratings; Outlook Revised To Stable.

Business Editors

NEW YORK--(BUSINESS WIRE)--June 29, 2000

Fitch has affirmed Philip Morris Companies Inc.'s (MO) senior unsecured debt rating of 'A' and commercial paper rating of 'F1'. The rating action follows the company's announcement that it has agreed to purchase 100% of Nabisco Holdings Corp. (NA) for $55 in cash per outstanding share for a total of approximately $14.9 billion. In connection with the acquisition, MO will assume Nabisco's $4.1 billion of gross debt ($4.0 billion net of cash). MO anticipates financing the acquisition with additional borrowings. The 'F1' rating of commercial paper issued by Philip Morris Finance (Cayman Islands) Ltd., with a guarantee by MO, was also affirmed. In addition, the 'F1+' rating of commercial paper issued by Philip Morris Capital Corp. was affirmed.

The Rating Outlook for MO, as well as the domestic tobacco industry, has been revised to Stable from Negative. The change in outlook primarily reflects the recent passage into Florida law of a limit of $100 million on the amount a defendant must bond in order to appeal a punitive damage award. The particular case in question is the Engle class action currently in trial. Compensatory damages have already been assessed, and a substantial, lump sum punitive damage award remains a possibility. Litigation, including the federal lawsuit brought by the Justice Department, and the potential for significant additional excise taxes remain concerns. Fitch will continue to monitor developments and assess their rating implications.

MO's credit protection measures will weaken as an immediate result of the purchase of Nabisco but should subsequently improve following a planned initial public offering (IPO) of less than 20% of the combined Kraft and Nabisco worldwide food businesses in early 2001. Within a short time after the contemplated IPO, consolidated leverage and coverage ratios should return to near historical levels. Recent credit ratios and cash flow have been exceptionally strong, a function of improved profitability across major business segments and lower debt levels.

In the possible event that the IPO does not proceed as planned due to market or other conditions, MO has the financial flexibility and, Fitch believes, the willingness to reduce shareholder enhancements if necessary to restore, within a reasonable time, credit protection measures to levels reflective of the current rating.

As more information is disclosed with respect to MO's plans to recapitalize the company's worldwide food business, Fitch will evaluate the impact, if any, on MO's ratings. Management has stated that it intends a capital structure for both MO and Kraft that would result in at least short-term ratings of 'F1' for each company.

The prospective strategic acquisition of NA will strengthen Kraft's global business position in the packaged food industry. Combined with Nabisco, Kraft is anticipated to rank No. 2 in revenues and No. 1 in income from operations on a worldwide basis. Nabisco's complementary portfolio of leading snack brands, most notably cookies and crackers, should enhance Kraft's growth prospects and provide opportunities for cross promotion. The integration of the two companies is expected to generate significant cost synergies and improve profit margins, especially in the years following the second anniversary of the transaction.

Fitch is an international rating agency that provides global capital market investors with the highest quality ratings and research. Dual headquartered in New York and London with a major office in Chicago, Fitch rates entities in 75 countries and has some 1,100 employees in more than 40 local offices worldwide. The agency, which is a combination of Fitch IBCA and Duff & Phelps Credit Rating Co., provides ratings for Financial Institutions, Insurance, Corporates, Structured Finance, Sovereigns and Public Finance Markets worldwide.