Fitch Publishes U.S. Tobacco ABS Breakeven Rankings for 2012

NEW YORK--()--Link to Fitch Ratings' Report: Fitch Publishes Tobacco Settlement ABS League Table
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=701840

Fitch Ratings has published tobacco settlement ABS rankings based on the breakeven model outputs and ratings of Fitch rated bonds. Fitch completed a review of tobacco portfolio accounting for the amount of Master Settlement Agreement (MSA) payments received in 2012 and published the rating changes on Aug. 22, 2012.

The following trusts were not reviewed until Jan. 10, 2013 as they are drawing on their reserve accounts and required further analysis:

--Buckeye Tobacco Settlement Financing Authority, 2007 (Ohio);

--Golden State Tobacco Securitization Corporation, UNITED STATES series 2007-1;

--Nassau County Tobacco Settlement Corporation, Tobacco Settlement Asset-Backed Bonds, series 2006.

For 2012, the aggregate MSA payment was 1.97% higher than the amount in 2011.

Fitch published updated Tobacco Settlement ABS Criteria on July 16, 2012, which included a change in the base case assumption for the MSA payment from +1% to 0%. The rating scale was recalibrated to reflect this change, and as a result there were several downgrades. The downgrades were taken on turbo and capital appreciation bonds (CABs), which are typically subordinated and more leveraged. No serial bonds were downgraded.

There were 91 downgrades resulting solely from changes in the criteria. For these bonds the breakeven output actually improved since last year. The other 15 downgrades resulted from continued performance deterioration. All of the performance downgrades were capital appreciation bonds.

The output produced by Fitch's tobacco settlement breakeven model on a bond is a key rating driver. The model indicates, for each class of bonds, the level of the annual MSA payment percent change the trust would be able to sustain and still pay the bond in full by the maturity date. The amount of the latest MSA payment that the transaction has received, the capital structure, the reserve account, and the bond's legal final dates are the key inputs to the model. A positive breakeven output indicates the minimum percentage of year-to-year growth in the MSA payments that are necessary for the bond to pay in full and on time. A negative output represents the maximum annual rate of decline in the MSA payments that the bond can withstand before defaulting.

The model indicated grade shows what the rating on the bond would be without any qualitative adjustments or the rating cap. Tobacco ratings are capped at 'BBB+sf', or one notch above Fitch's assessment of the tobacco industry accounting for the risk of manufacturer default. Therefore, all bonds with a model indicated grade of 'a-' or above will have ratings at 'BBB+sf'. At this time, 91 bonds have breakeven multiples indicative of ratings above 'BBB+sf'. All bonds with a model indicated grade of 'bbb+sf' or lower were assigned Negative Outlooks as a result of Fitch's belief that the ratings will remain under pressure for downgrades.

The ranking based on the breakeven levels and the actual ratings do not exactly match. This is because qualitative adjustments are made to avoid unnecessary rating volatility by requiring two consecutive years of model outputs to change ratings to what is indicated by the model. However, if the implied rating differs from the current rating by more than one notch, in most cases, the rating is changed immediately to a level that is a notch above the implied rating. Therefore, the qualitative adjustment generally would not result in the actual rating being different from the implied by more than a notch.

For a full list of breakeven multiples 'Tobacco Breakeven Ranking 2012', which is available at 'www.fitchratings.com'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'U.S. Tobacco Settlement ABS Criteria' (July 16, 2012);

--'Global Structured Finance Rating Criteria'(June 6, 2012).

Applicable Criteria and Related Research:

U.S. Tobacco Settlement ABS Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682015

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679923

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Contacts

Fitch Ratings
Primary Analyst
Lauren Tierney, +1-212-908-9168
Associate Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Committee Chairperson
Steven Stubbs, +1-212-908-0676
Senior Director
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
Email: sandro.scenga@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Lauren Tierney, +1-212-908-9168
Associate Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Committee Chairperson
Steven Stubbs, +1-212-908-0676
Senior Director
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
Email: sandro.scenga@fitchratings.com