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Debt Policy

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Debt Policy at UST Inc.1. What are the primary business risks associated with USTInc.? What are the attributes of UST Inc.? Evaluate from theviewpoint of the bondholder.
Over the years, UST has been a dominant producer in the tobaccoindustry, specifically the moist tobacco industry. Even though the paststrategy with UST has entailed raising the prices of its products on aregular basis, the company still shows signs of positive growth.Additionally, there have been recent issues with smokeless tobaccoproducts, such as lawsuits. However, there remains a constantconsumer demand for UST products. When evaluating the businessrisk of a company, one of the primary drivers of its business risk stemsfrom the price elasticity of its products. Thus, these are a few reasonsthat illustrate that the smokeless tobacco industry (UST’s mostdominant EBIT contributor) has a relatively steep demand curve andshould be considered as having an inelastic consumer demand. Also, itis important to note that UST has products outside of its coreoperations in the wine and premium cigar market. Also, UST hasintroduced products in the price value market as consumer demandhas increased.
Brand name and market position - superior Cash flow generating capacity
- superior
Cyclicality of revenues
- superior
Product diversification
- poor
Geographic diversification
- good Asset tangibility
- good
Litigation Risk – poorObviously, the two most troubling business risks associated with USTare its litigation and product diversification risks. The smokelesstobacco industry will always face potential lawsuits because of theongoing health concerns. Also, even though UST has diversified intoother markets (wine and cigars), these products are very minimallyattributing to UST’s EBIT. Nevertheless, UST products have a steadydemand for their products, they produce positive cash flows year-to-year, and

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