S&P places British American Tobacco's debt on CreditWatch Negative

Analysts at Standard&Poor's placed British American Tobacco's long-term corporate debt on 'CreditWatch Negative' in the wake of reports that it might be set to bid for the roughly 58% of Reynolds American which it does not already own.

Should it proceed, and based on the rating agency's "understanding" of the two companies' long-term free cash flow generation capacity, and BAT's financial policy, such a transaction might result in a one-notch ratings downgrade, S&P said in a statement.

Hence S&P's decision to move to 'CreditWatch Negative' until it became clear whether the tie-up was likely to proceed, or not, and on what terms.

Should the combination be carried out under the terms outlined by British American Tobacco on 21 October - comprising $20bn in cash and another $27bn - then "with our current understanding of BAT's financial risk tolerance, we will likely lower our ratings on BAT by one notch," S&P said in a statement.

The tobacco-maker's short-term debt rating was reaffirmed on the view that the downside to the long-term rating was only one notch, the analysts added.

No ratings action was forthcoming at that point on Reynolds, S&P added.