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Japan Tobacco (JAPTOB; A2/A+) S&P comments on ~$3.4b acquisition of Vector Group

CONSUMER STAPLES

Nothing new from S&P despite the bulletin headline reading like a rating downgrade. It sees full debt funding moving leverage to only 1.4x (from prev. estimate of 0.9x) - as we said 0.5x turn acquisition at most. It does flag downgrade potential if >1.5x.

On VGR as expected; notes Altria and BAT are the large players in the US (70% market share) while Vector has 5% (JAPTOB has it at 5.7%) and targets low-priced, discount products. It's noted diversification benefits and Russia dependence (we have it at 20% on profit contribution).


Perp's (Baa1/A-) are little moved with sub-senior spreads at ~100bps on the 26 and 28 callable lines.

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