NEW YORK--(BUSINESS WIRE)--(This is a correction of the 2015 U.S. Tobacco portfolio review spreadsheet originally published on Aug. 6, 2015. The original spreadsheet failed to include the 2016 serial bond for Rensselaer Tobacco Asset Securitization, Series 2001, which was designated as paid in full on the Fitch website. The corrected spreadsheet properly designates the 2016 serial bond as being affirmed. Please see the corrected spreadsheet.)
Fitch Ratings has completed its annual review of tobacco ABS ratings accounting for the amount of Master Settlement Agreement (MSA) payment received by each trust in 2015. For 2015, the aggregate MSA payment was 0.36% higher than the amount 2014.
Fitch is placing 66 tranches on Rating Watch Negative due to the pending outcome of the tobacco criteria revision. It is expected that most downgrades will be one to two notches, which could potentially be lower than the current rating floor of 'B-sf'.
There are 10 downgrades, 11 upgrades and 164 affirmations. Although the MSA payment was stable year-over-year, many of these downgrades result from having model indicated grades which were below the current rating for two consecutive years. The upgrades were mostly on California issued trust and Puerto Rico which received a settlement in 2013.
Buckeye Tobacco Settlement Financing Authority, 2007 (Ohio) and Suffolk Tobacco Asset Securitization Corporation, Tobacco Settlement Asset-Backed Bonds, Series 2008 continue to have debt service reserve balances below their required levels. As a result, Fitch does not give them the benefit of a rating one notch above the model indicated grade regardless of whether the state received a settlement. Nassau County Tobacco Settlement Corporation, Tobacco Settlement Asset-Backed Bonds, Series 2006 had been drawing on its reserve account in the past, but is now at its required level.
KEY RATING DRIVERS
Fitch uses its breakeven model to analyse tobacco performance. The breakeven model assesses how much the MSA payment received by the trust could decline for each bond to pay at the legal final 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.
Since the tenor of these transactions is typically long and the cash flows can be unpredictable, qualitative adjustments may be taken to avoid rating volatility by requiring two years of consecutive model outputs in order to downgrade to the model implied output. However, if more than one notch difference exists between the current rating and the model implied rating, the bond will be downgraded to one notch above the model output. Tobacco ratings are capped at 'BBB+sf', based on Fitch's opinion of the strength of the tobacco industry. Bonds with Negative Outlook reflect Fitch's concern over a future deterioration in cash flows based on MSA payment decline breakeven analysis.
See the web file titled 'Fitch Completes U.S. Tobacco Portfolio Review' for a full list of breakeven multiples.
RATING SENSITIVITIES
No rating sensitivity was reviewed in relation to this rating action.
DUE DILIGENCE USAGE
No third-party due diligence was provided or reviewed in relation to this rating action.
Additional information is available at www.fitchratings.com.
Fitch Completes U.S. Tobacco ABS Portfolio Review -- Amended
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=874529
Applicable Criteria
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158
Criteria for Rating Caps and Limitations in Global Structured Finance Transactions (pub. 28 May 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748781
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952
U.S. Tobacco Settlement ABS Criteria (pub. 05 Oct 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=871847
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=995560
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=995560
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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