Fitch Rates Philip Morris International 'A+/F1'; Outlook Stable

Business Wire, Jan 30, 2008

CHICAGO -- Fitch Ratings has assigned Philip Morris International Inc. (PMI) a long-term Issuer Default Rating (IDR) of 'A ' and a short-term IDR of 'F1'. Fitch has also upgraded PMI's senior unsecured rating to A from 'BBB ' and removed it from Rating Watch Positive. The Rating Outlook on all the ratings is Stable. These rating actions are predicated upon the premise that PMI will be de-merged from Altria Group, Inc. (Altria), in line with today's announcement issued by Altria.

The ratings reflect PMI's strong positions in several attractive tobacco markets, the beneficial brand concentration on the globally well-known 'Marlboro', and the balanced profile of its operations in cash-generative mature markets as well as in large developing markets with high growth potential. These factors, combined with a promising pipeline of innovative products, contribute to PMI's expected ability to maintain its high cash generation and its demonstrated momentum of organic profit growth.

PMI's ratings are constrained by a financial policy, which envisages an increase in the current low leverage. Fitch expects any operational and administrative support that PMI receives from Altria and Philip Morris USA ('PM USA') to be eliminated in the near-term, thereby completing the separation legally, financially, and operationally.

Both Altria and PM USA are defendants in a number of U.S. tobacco litigation cases. While PMI will be the beneficiary of an indemnity agreement with Altria and PM USA, Fitch cautions that a small risk of spill-over to PMI cannot be ruled out due to PMI's past affiliation with both PM USA and Altria. This risk is mitigated by the gradually improving environment for tobacco-related litigation in the United States.

PMI holds the number one or number two position in 19 of the 30 largest tobacco markets in the world, with market shares that provide it large critical mass. These include mature markets such as Germany, France and Italy, but which are characterized by high and still overall increasing cash generation levels, as well as large high-growth markets, such as Turkey, Indonesia and Russia, where consumption is migrating to premium brands like Marlboro.

For the fiscal year ending Dec. 31, 2007, PMI revenues were $22.8 billion, operating company's income was $9.1 billion, total debt was $6.3 billion and cash balances were $1.7 billion. Operating company income excludes amortization of intangibles, general corporate expenses and one-time items.

PMI ratings are supported by substantial cash flow generation (before dividend payments and working capital movements), which over the period between FY04 and FY06 equaled on average $5.0 billion per annum. However, Fitch estimates PMI's dividend and share buyback policies, generous dividend payments post-spin, 65% of net earnings, and share buybacks of $13.0 billion over a two year period, would cause FY06's very conservative leverage of under 0.5x (calculated on a lease adjusted basis) to increase up to 1.3x-1.5x mark by FYE09.

Tobacco litigation remains a minor concern outside the U.S. In most countries where PMI operates, litigation is discouraged by legal systems where the concept of punitive damages is less harsh than in the U.S. and where the costs associated with losing a case causes plaintiffs to weigh more cautiously their chances of success before initiating legal action. Fitch notes the uniqueness of the U.S. legal system, whereby plaintiffs do not pay court charges in case of adverse verdicts.

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