 |
|
|||||||
|
||||||||
By
Shares of Altria Group (NYSE: MO), parent of Philip Morris USA, are trading at two-year lows today, as concerns about the tobacco company's legal woes mount. Never a stranger to courtroom action, some investors and credit rating agencies are wondering if Altria is in over its head this time. The problem isn't so much the recent Illinois decision that slapped Philip Morris USA with a $10.1 billion verdict for deceiving smokers of "light" ciggies into thinking they contained less tar than normal cigarettes. It's the appeals bond attached to the decision that is giving the market pause. In order to appeal the decision, Philip Morris USA would need to come up with a bond of $12 billion. Moody's has already downgraded Altria's existing debt on liquidity concerns, and both Fitch and Standard & Poor's are reviewing their ratings. The company faces an April 21 deadline for appealing, and that short time frame, coupled with the fact that it could be a real challenge for Altria to raise that kind of cash right now, contributed to the agencies' actions. However, here's the catch: The appeals bond of $12 billion is unlikely to stand. The Illinois state legislature is working on a bill to cap bonds like this at $25 million. Altria could also ask the judge to lower the amount, or it could try to get a higher court to step in. Why might the parties involved agree to lower the bond? Well, should they leave it as is, they'll be in jeopardy of not receiving their payouts from Philip Morris USA's settlement with the states. The company's slated to pay Illinois $9.1 billion over the next 25 years, and has a payment of $2.5 billion to the states due on April 15. If the states want their money, and you can bet your bottom dollar they do, it'll be in everyone's best interest to reduce the bond. Standard & Poor's said that Philip Morris USA may have to file for bankruptcy if the appeal bond isn't lowered. That's an absolute worst-case scenario and, though it does sound scary, it's very unlikely to come to that. This isn't to say that there aren't legal uncertainties outstanding right now for Philip Morris USA and Altria, but the sky's not falling here just yet.
RSS Headlines
Fool UK
