NEW YORK--(BUSINESS WIRE)--Fitch Ratings has placed 49 tranches of tobacco settlement asset-backed securities (ABS) on Rating Watch and revised two from Rating Watch Negative to Rating Watch Evolving in connection with an ongoing and comprehensive review of its entire tobacco settlement ABS portfolio. Fitch is taking these actions because of updated or corrected data, assumption changes, anticipated additional payments and/or corrections to previous inputs. Fitch had previously placed an additional 66 tranches on Rating Watch Negative subsequent to the most recent annual criteria review (see Fitch's release dated Nov. 30, 2015).
KEY RATING DRIVERS
Fitch's current review is focused on verifying several inputs, both key and minor, used in the determination of tobacco settlement ABS credit ratings. These inputs include the issuer's allocable share of the April 2015 payment received by states under the Master Settlement Agreement (MSA), the state's allocation percentage of annual and strategic contribution fund payments, outstanding bond balances, coupon rates and maturity dates. Fitch is also reviewing certain other inputs that have less of an impact including operating expense caps and reinvestment rates on reserve fund balances.
All inputs are being verified by one or more sources including offering memoranda and other issuer disclosure documents, data published by the National Association of Attorneys General, transaction reports, bank account statements, ad hoc information requests and discussions with representatives of the issuer and/or state offices of the Attorney General.
Fitch's review is ongoing and we await confirmation of certain key data points, including MSA payments received by the issuers and outstanding bond balances, notably in transactions issued by municipalities in New York State. For those deals for which verification has not been received, Fitch has applied interim assumptions based on available information.
New York Settlement Securitizations
Fitch's review of transactions within New York State is complicated by the fact that Fitch has not received detailed responses to all of its requests for verification, particularly for the 2015 MSA payments (a key input variable). Additionally, a recently announced settlement between New York and participating manufacturers will release approximately $550 million in previously escrowed funds to New York, with a significant portion potentially allocated to the New York State transactions. To date, Fitch is awaiting information as to how New York will allocate those funds. Fitch expects more detailed information (as well as an accounting of the 2015 payments) on the Attorney General's website in the near future.
Given the potential benefit of the settlement proceeds to the bond ratings, Fitch has placed some tranches of transactions within New York State on Rating Watch Evolving as the benefit of the settlement proceeds may outweigh other findings in the review.
Near Future
Over the next month, Fitch expects to receive the remaining data needed to complete its review and resolve the Rating Watch status on the affected tranches. Once completed, Fitch expects to provide a full commentary on its review findings.
Please note that if Fitch cannot obtain satisfactory verification for key rating inputs, particularly for the MSA payments, Fitch may consider rating withdrawals.
Criteria Deviation - Elimination of Two-Year Migration Period
In placing certain tranches on Rating Watch, Fitch has not followed its current criteria by eliminating the typical two-year migration period for ratings. Instead, Fitch expects to take a more conservative stance by moving ratings directly to their model implied rating (as produced by the updated breakeven cash flow model) without a transition period.
Fitch's Rating Watches are classified as follows:
--California County Tobacco Securitization Agency, The (Golden Gate Funding Corporation) 2007, Series C 2057 Subordinate CAB at 'BB-sf', placed on Rating Watch Negative from Rating Outlook Negative.
--California County Tobacco Securitization Agency, The (Los Angeles County Securitization Corporation) 2006, Series 2028 Convertible Turbo Bonds at 'Bsf', placed on Rating Watch Negative from Rating Outlook Negative.
--California County Tobacco Securitization Agency, The (Los Angeles County Securitization Corporation) 2006, Series 2046 Convertible Turbo Bonds at 'B+sf', placed on Rating Watch Negative from Rating Outlook Negative.
--California County Tobacco Securitization Agency, The (Merced County Tobacco Funding Corporation) 2005, Series A 2045 Term Bond at 'B+sf', placed on Rating Watch Negative from Rating Outlook Negative.
--California Statewide Financing Authority 2002, Series A 2037 Term Bond at 'BBB-sf', placed on Rating Watch Negative from Rating Outlook Stable.
--California Statewide Financing Authority 2002, Series A 2043 Term Bond at 'BB+sf', placed on Rating Watch Negative from Rating Outlook Negative.
--California Statewide Financing Authority 2002, Series B 2037 Term Bond at 'BBB-sf', placed on Rating Watch Negative from Rating Outlook Stable.
--California Statewide Financing Authority 2002, Series B 2043 Term Bond at 'BB+sf', placed on Rating Watch Negative from Rating Outlook Negative.
--Chautauqua Tobacco Asset Securitization Corporation, Series 2014, Series 2029 Term Bond at 'BBB+sf', placed on Rating Watch Negative from Rating Outlook Negative.
--Chautauqua Tobacco Asset Securitization Corporation, Series 2014, Series 2034 Term Bond at 'BBB+sf', placed on Rating Watch Negative from Rating Outlook Negative.
--Chautauqua Tobacco Asset Securitization Corporation, Series 2014, Series 2039 Term Bond at 'BBBsf', placed on Rating Watch Negative from Rating Outlook Negative.
--Chautauqua Tobacco Asset Securitization Corporation, Series 2014, Series 2048 Term Bond at 'BBB-sf', placed on Rating Watch Negative from Rating Outlook Negative.
--Childrens Trust Fund, The, 2002 (Puerto Rico), Series 2043 Term Bond at 'BBB-sf', placed on Rating Watch Positive from Rating Outlook Stable.
--Childrens Trust Fund, The, 2005 (Puerto Rico), Series 2005 B at 'Bsf', placed on Rating Watch Negative from Rating Outlook Stable.
--Erie Tobacco Asset Securitization Corporations (New York) 2005, Series A 2031 Current Interest Bond at 'BBB+sf', placed on Rating Watch Negative from Rating Outlook Negative.
--Erie Tobacco Asset Securitization Corporations (New York) 2005, Series A 2038 Current Interest Bond at 'BBB-sf', placed on Rating Watch Negative from Rating Outlook Negative.
--Erie Tobacco Asset Securitization Corporations (New York) 2005, Series A 2045 Current Interest Bond at 'BB+sf', placed on Rating Watch Negative from Rating Outlook Negative.
--Erie Tobacco Asset Securitization Corporations (New York) 2005, Series B 2047 Capital Appreciation at 'BBsf', placed on Rating Watch Negative from Rating Outlook Negative.
--Erie Tobacco Asset Securitization Corporations (New York) 2005, Series C 2050 Capital Appreciation at 'Bsf', placed on Rating Watch Negative from Rating Outlook Negative.
--Erie Tobacco Asset Securitization Corporations (New York) 2005, Series E 2028 Current Interest Bond at 'BBB+sf', placed on Rating Watch Negative from Rating Outlook Stable.
--Michigan Tobacco Settlement Finance Authority 2008, Series 2008A at 'BB-sf', placed on Rating Watch Negative from Rating Outlook Negative.
--Nassau County Tobacco Settlement Corporation (New York) 2006, Series 2006A-1 Senior Bonds at 'BB+sf', placed on Rating Watch Evolving from Rating Outlook Stable.
--New York Counties Tobacco Trust I 2000, Series 2042 Term Bond at 'BBB+sf', placed on Rating Watch Negative from Rating Outlook Negative.
--New York Counties Tobacco Trust II 2001, Series 2043 Term Bond at 'BBB+sf', placed on Rating Watch Negative from Rating Outlook Stable.
--New York Counties Tobacco Trust IV 2005, Series 2005A Turbo Term Bond 2038 at 'BBB-sf', placed on Rating Watch Negative from Rating Outlook Stable.
--New York Counties Tobacco Trust IV 2005, Series 2005A Turbo Term Bond 2042 at 'B+sf', placed on Rating Watch Negative from Rating Outlook Negative.
--New York Counties Tobacco Trust IV 2005, Series 2005A Turbo Term Bond 2045 at 'B+sf', placed on Rating Watch Negative from Rating Outlook Negative.
--New York Counties Tobacco Trust IV 2005, Series 2005B Turbo Term Bond at 'BBB+sf', placed on Rating Watch Negative from Rating Outlook Stable.
--New York Counties Tobacco Trust IV 2005, Series 2005D Subordinate Turbo CABs at 'B+sf', placed on Rating Watch Negative from Rating Outlook Negative.
--New York Counties Tobacco Trust IV 2005, Series 2005E Subordinate Turbo CABs at 'Bsf', placed on Rating Watch Negative from Rating Outlook Negative.
--New York Counties Tobacco Trust IV 2005, Series 2010A Turbo Term Bonds at 'BBsf', placed on Rating Watch Negative from Rating Outlook Negative.
--Niagara Tobacco Asset Securitization Corporation, Series 2014, Series Term 2029 at 'BBB+sf', placed on Rating Watch Negative from Rating Outlook Negative.
--Niagara Tobacco Asset Securitization Corporation, Series 2014, Series Term 2034 at 'BBB+sf', placed on Rating Watch Negative from Rating Outlook Negative.
--Niagara Tobacco Asset Securitization Corporation, Series 2014, Series Term 2040 at 'BBB+sf', placed on Rating Watch Negative from Rating Outlook Negative.
--Northern Tobacco Securitization Corporation, 2006 (Alaska) Series 2006, Series 2023A Turbo Term Bond at 'BBsf', placed on Rating Watch Negative from Rating Outlook Negative.
--Rensselaer Tobacco Asset Securitization Corporation Series A 2001, Series 2043 Super Sinker Term Bond at 'BBB+sf', placed on Rating Watch Negative from Rating Outlook Negative.
--Silicon Valley Tobacco Securitization Authority (Santa Clara County Tobacco Securitization Corporation) 2007, Series 2007 A CAB 2036 at 'BBsf', placed on Rating Watch Negative from Rating Outlook Negative.
--Silicon Valley Tobacco Securitization Authority (Santa Clara County Tobacco Securitization Corporation) 2007, Series 2007 A CAB 2041 at 'BBsf', placed on Rating Watch Negative from Rating Outlook Negative.
--Suffolk Tobacco Asset Securitization Corporation Series 2008, Series 2008B-1 at 'BBB-sf', placed on Rating Watch Negative from Rating Outlook Negative.
--Suffolk Tobacco Asset Securitization Corporation Series 2008, Series 2008B-2 at 'BB-sf', placed on Rating Watch Negative from Rating Outlook Negative.
--Suffolk Tobacco Asset Securitization Corporation Series 2008, Series 2008C at 'BB-sf', placed on Rating Watch Negative from Rating Outlook Negative.
--Tobacco Settlement Asset Securitization Corporation (TSASC), 1999 Indenture, (New York) 2006-1, Series 2022 Turbo Term Bond at 'BBB-sf', placed on Rating Watch Positive from Rating Outlook Stable.
--Tobacco Settlement Asset Securitization Corporation (TSASC), 1999 Indenture, (New York) 2006-1, Series 2026 Turbo Term Bond at 'BB-sf', placed on Rating Watch Evolving from Rating Outlook Negative.
--Tobacco Settlement Asset Securitization Corporation (TSASC), 1999 Indenture, (New York) 2006-1, Series 2034 Turbo Term Bond at 'Bsf', revised to Rating Watch Evolving from Rating Watch Negative.
--Tobacco Settlement Asset Securitization Corporation (TSASC),
1999 Indenture, (New York) 2006-1, Series 2042 Turbo Term Bond at 'Bsf', revised to Rating Watch Evolving from Rating Watch Negative.
--Ulster Tobacco Asset Securitization Corporation 2001, Series 2030 Current Interest Bond at 'BBB+sf', placed on Rating Watch Negative from Rating Outlook Stable.
--Ulster Tobacco Asset Securitization Corporation 2001, Series 2040 Convertible CABS at 'BBBsf', placed on Rating Watch Negative from Rating Outlook Stable.
--Ulster Tobacco Asset Securitization Corporation 2001, Series 2040 Current Interest Bond at 'BBBsf', placed on Rating Watch Negative from Rating Outlook Stable.
--Westchester Tobacco Asset Securitization Corporation (New York) 2005, Series 2026 Term Bond at 'BBBsf', placed on Rating Watch Positive from Rating Outlook Negative.
--Westchester Tobacco Asset Securitization Corporation (New York) 2005, Series 2038 Term Bond at 'BB-sf', placed on Rating Watch Positive from Rating Outlook Negative.
--Westchester Tobacco Asset Securitization Corporation (New York) 2005, Series 2045 Term Bond at 'B+sf', place on Rating Watch Positive from Rating Outlook Negative.
RATING SENSITIVITIES
Fitch runs different declines in MSA payment scenarios when evaluating the rating sensitivity for tobacco settlement ABS in transactions issued in the last two years. For further discussion of Fitch's sensitivity analysis, please see the related presale or new deal report for the respective transaction. In the absence of sensitivity analysis for transactions which are older, key rating drivers that would impact the analysis include the issuer's allocable share of the April 2015 payment received by states under the MSA, the state's allocation percentage of annual and strategic contribution fund payments, outstanding bond balances, coupon rates and maturity dates.
DUE DILIGENCE USAGE
No third-party due diligence was provided or reviewed in relation to this rating action.
Additional information is available on www.fitchratings.com.
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
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=995576
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.