Moody's may cut Universal Corp.

Moody's Investors Service said it placed the ratings of Universal Corp. under review for possible downgrade, including the Baa3 senior unsecured debt rating, Baa3 senior unsecured shelf rating and Prime-3 commercial paper rating.

The rating action reflects the erosion in operating margins and maintenance of high debt levels during fiscal 2006, which leaves the company with relatively weak debt protection measures for its current rating category, the agency said.

Moody's said Universal's last-12-month September credit measures have been weak due to continued high debt levels, the continued adverse effects of less-than-average product quality in Brazil, excess supply, a weak dollar, a soft pricing environment and a prolonged inventory turnover cycle.

Debt to EBITDA is approaching 5x, EBIT to interest has fallen to near 3x and free cash flow has consistently been negative. Although such effects may be temporary, the agency said short-term operating results are largely outside of the company's control as they are subject to its reliance on farmers for supply, concentrated customers taking receipt of tobacco, the size and quality of the crop and currency exchange movements.

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