Fitch Affirms Loews' IDR at 'A' Following Lorillard Spin-off Announcement

Business Wire, Dec 17, 2007

CHICAGO -- Fitch Ratings has affirmed Loews Corporation's (Loews; NYSE: LTR) debt ratings following the company's announcement that its Board of Directors has approved a plan to spin off its entire ownership interest in Lorillard, Inc. to holders of its Carolina Group stock and Loews common stock holders in a tax free transaction. The transaction is expected to be completed in mid-2008. Fitch views the transaction as neutral to the Loews' credit ratings.

Fitch affirms Loews' debt as follows:

--Issuer Default Rating (IDR) 'A';

--Senior unsecured notes 'A'.

Approximately $870 million of debt is affected by this rating action. The Rating Outlook is Stable.

The spin-off is expected to be effected through the redemption of the Carolina Group stock in exchange for the common stock of Lorillard. Loews will divest of the remaining 38% of Lorillard's outstanding common stock in an exchange offer for shares of outstanding Loews common stock if the company determines that market conditions are acceptable for an exchange. However, if Loews determines not to effect the exchange offer or the exchange offer is not fully subscribed, the remaining shares of Lorillard would be distributed as a pro rata dividend to the holders of Loews common stock.

The spin-off of Lorillard will result in the elimination of Loews receiving sizeable dividends from the company; however, this is balanced by the significant reduction in Loews' indirect exposure to tobacco litigation risk. Furthermore, the elimination of Lorillard's notional debt and Loews reduced economic interest in Lorillard would have resulted in Loews receiving lower future dividends. Loews' ratings continue to be supported by the cash flow derived from its major remaining operating subsidiaries, CNA Financial Corporation (NYSE: CNA), Diamond Offshore Drilling, Inc., and Boardwalk Pipeline, LP. Loews continues to experience strong financial performance across all of its major operating units, which has resulted in increasing diversification of its cash flows and improvements of its credit measures.

Diamond Offshore continues to benefit from the robust market for offshore drilling rigs. The company's earnings and cash flows have increased substantially as a result of dayrate increases continuing to outpace cost increases. In addition, because of Diamond Offshore's ability to lock in future dayrates, Fitch continues to see a higher level of visibility to future earnings and cash flows than has been historically witnessed in industry cycles. Additionally, sustained operational and financial improvements at CNA have resulted in improved earnings and cash flows and a strengthened capital base, which has allowed CNA to begin to remit dividends in 2007.

Fitch currently rates Loews' other operating subsidiaries as follows, with a Stable Outlook:

CNA

--Issuer Default Rating (IDR) 'BBB ';

--Senior unsecured debt 'BBB'.

Boardwalk Pipelines, LP

--Issuer Default Rating (IDR) 'BBB';

--Senior unsecured debt 'BBB'.

Texas Gas Transmission, LLC

--Issuer Default Rating (IDR) 'BBB ';

--Senior unsecured debt 'BBB '.

The ratings are further supported by substantial liquidity at the parent company as a part of a conservative financial strategy that has resulted in cash and investments exceeding debt levels for many years. This practice reduces the credit risk at the parent level. Loews has at times provided financial support to operating subsidiaries; however, such support has not resulted in increased leverage. Cash and marketable investments, net of payables for securities purchased were $3.1 billion at Sept. 31, 2007 at the parent level. While Fitch expects the company to make acquisitions utilizing a portion of its cash and investment balances, a high level of liquidity is expected to be maintained.

Overall credit measures continue to improve due to increased operating earnings, cash flows and lower debt levels. Consolidated total-debt to EBITDA was 1.4 times (x) and funds from operations to adjusted leverage was 2.3x for the latest 12-month period ended Sept. 30, 2007 and total EBITDA-to-interest expense was 16.2x for the same period. However, on a pro forma basis credit metrics are expected to weaken as a result of the proposed spin-off of Lorillard.

Loews is a holding company with subsidiaries engaged in the following lines of business: commercial property and casualty insurance (CNA, a 89% owned subsidiary); the production and sale of cigarettes (Lorillard, a wholly owned subsidiary); natural gas and oil exploration and production (High Mount Exploration & Production LLC (a wholly own subsidiary); the operation of interstate natural gas transmission pipeline systems (Boardwalk Pipeline, LP, a 75% owned subsidiary); the operation of offshore oil and gas drilling rigs (Diamond Offshore, a 51% owned subsidiary); the operation of hotels (Loews Hotels Holding Corporation, a wholly owned subsidiary) and the distribution and sale of watches and clocks (Bulova Corporation, a wholly owned subsidiary).

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.