...The Negative Outlook reflects the risk of a downgrade in the absence of reforms to the current US tax system. This system leads Philip Morris International, Inc. (PMI) to build up offshore cash balances and carry increasing leverage. Also, PMI's profile is shifting from a business characterised by predictable cash flow generation to one with an increasing investment and development component. While PMI's new Reduced Risk Products (RRP) are showing promising performance and the related investments should proceed at a measured pace, we project more limited post-dividend Free Cash Flow (FCF) than historically. We believe this should be counterbalanced by a return of leverage within the parameters consistent with the current `A' IDR. However, we project that the current investment phase for RRPs, combined with the build-up of cash, will cause leverage to remain elevated until at least 2019. Given the increasing chances of a tax reform in the US, this may lead PMI to change its capital structure;...
