Ratings agency Fitch has put British American Tobacco (BAT) on a rating watch negative after it offered to buy out Reynolds American.
It warned that the debt required for funding the deal would mean it could not keep its current A credit rating.
A similar announcement was made by fellow agency Moody's on Friday, who put their A3 and P2 ratings under review for downgrade.
London-based BAT have made an offer to acquire the outstanding 57.8 per cent of the shares for around $20bn in cash, for a value of around $60bn. This would include assuming $13bn in net debt.
Fitch estimated that the deal could send their net debt as high as 4.5 times consolidated earnings before tax in 2017, compared to 2.8 per cent in 2015.
BAT already owns 42.2 per cent of Reynolds, which makes Camel and Pall Mall cigarettes. Last year BAT sold 663bn cigarettes, while Reynolds sold 83bn.The potential deal could be seen as an attempt to make up for a decline in smoking across the US and UK.
"Our decision to place BAT's ratings on review for downgrade recognises that, while the acquisition will enhance BAT's business profile, it could lead to a significant deterioration in BAT's credit metrics," said Moody's lead analyst for BAT, Ernesto Bisagno.
Shares in BAT have taken a hit at the news, falling by two per cent this morning, but they are beginning to bounce back.