NEW YORK--(BUSINESS WIRE)--Fitch Ratings has placed two series of the California County Tobacco Securitization Agency (Los Angeles County Securitization Corporation), tobacco settlement asset backed bonds, series 2006 on Rating Watch Negative. A detailed list of rating actions follows at the end of this release.
KEY RATING DRIVERS
The placement of the bonds on Rating Watch Negative is the result of a model error detected in Fitch's Tobacco Settlement ABS Breakeven Model (the model). The model is utilized in assigning new - and monitoring existing - tobacco settlement ABS ratings.
The model error impacted the breakeven percentage result for these tranches under a Master Settlement Agreement (MSA) payment change scenario. Specifically, the model error failed to account for model implied interest shortfalls for senior tranches before applying available cash to the affected junior bonds. This caused an understated breakeven output resulting in a higher implied model indicated rating for the tranche.
The model error has been corrected and all Fitch rated tobacco settlement transactions have been reviewed using the corrected model.
Today's rating action results from the discrepancy between the corrected model output relative to the ratings assigned. The Rating Watch status is expected to be resolved once the impact of California's forthcoming Non-Participating Manufacturer dispute settlement payment is determined.
Fitch runs different declines in MSA payment scenarios when evaluating the rating sensitivity for tobacco settlement ABS. For further discussion of Fitch's sensitivity analysis, please see the related presale report for this transaction.
Fitch has placed the following series on Rating Watch Negative:
-- $69,510,000 convertible turbo bonds, due June 1, 2041 at 'BB-'; and
-- $94,580,000 convertible turbo bonds, due June 1, 2046 at 'BB-'.
Additional information is available at 'www.fitchratings.com'.
Applicable criteria available at 'www.fitchratings.com':
-- 'U.S. Tobacco Settlement ABS Criteria' (July 10, 2013);
-- 'Global Structured Finance Rating Criteria' (May 24, 2013).
Applicable Criteria and Related Research:
U.S. Tobacco Settlement ABS Criteria
Global Structured Finance Rating Criteria