S&P Upgrades All Ratings of Altria Group (MO); Outlook Stable

Standard & Poor's Ratings Services raised all of its ratings on Altria Group Inc. (NYSE: MO), including the long-term corporate credit and senior unsecured note ratings to 'A-' from 'BBB+' and the short-term commercial paper rating to 'A-1' from 'A-2'. The outlook is stable.

"The upgrades reflect Altria's continued industry-leading 50% market share, solid profitability, and our assumption that the company will continue to successfully manage the litigation and regulatory environments," said Standard & Poor's credit analyst Gerald Phelan. "It is also based on our expectation that Altria's solid financial performance will continue and our belief that it will maintain its beer industry investment for at least five years to address potential meaningfully unfavorable litigation outcomes, including potential Lights class action judgements. Our expectation for increased multi-year financial flexibility is a key factor in our reassessment of the company's liquidity profile to exceptional from strong and the short-term CP upgrade."

Our ratings on Altria reflect the company's solid positions across the tobacco industry, very high EBITDA margin (around 50%), retail incentive programs that facilitate favorable product placement on store shelves, and a strong management team. Partly offsetting these strengths are the secular decline in U.S. cigarette volumes, evolving federal and local regulatory environments that could lead to further reductions in tobacco use, and meaningful litigation risk, particularly with respect to Engle progeny and lights class action lawsuits, which we assume the company will continue to uccessfully
manage.

The ratings also incorporate Altria's 80% dividend payout ratio and potential for increased share buybacks going forward, especially considering that the company reduced adjusted debt by almost $1 billion over the past year.

The stable outlook incorporates our expectation for continued good profitability and cash flow generation over the next two years, which we forecast will be used entirely for shareholder payments. We project Altria to maintain debt to EBITDA around 2x.

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