Fitch Affirms 1 & Upgrades 6 Classes of Legal Settlement Bonds (Tobacco Related)

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has completed a review of its portfolio of legal settlement bonds (tobacco related) and taken rating actions on the outstanding classes as follows:

Legal Settlement Trust 2001-A

--$50,500,000 bonds affirmed at 'BBB-'.

Legal Settlement Trust 2002-A

--$53,750,000 bonds upgraded to 'BBB' from 'BBB-'.

Litigation Settlement Monetized Fee Trust I, 2001-1

--$267,100,000 class A-1 certificates upgraded to 'BBB' from 'BBB-';

--$41,000,000 class A-2 certificates upgraded to 'BBB' from 'BBB-'.

Litigation Settlement Monetized Fee Trust III, 2001-2

--$43,400,000 certificates upgraded to 'BBB' from 'BBB-'.

Litigation Settlement Monetized Fee Trust IV, 2002-1

--$70,510,000 certificates upgraded to 'BBB' from 'BBB-'.

Litigation Settlement Monetized Fee Trust V, 2002-2

--$38,520,000 certificates upgraded to 'BBB' from 'BBB-'.

Fitch has upgraded the six classes to be in line with the domestic tobacco industry rating given their ability to withstand cashflow stress commensurate with that rating. Fitch has affirmed one class at 'BBB-', reflecting slightly weaker stress it is deemed capable of absorbing.

The collateral securing the above transactions consists of notes backed by fee awards payable to legal firms (participating firms) that served as outside counsel to the States in their settlement agreement with the domestic tobacco industry. The fee awards are payable to the participating firms under a fee payment agreement with the tobacco manufacturers. The fee payment agreements set forth the amount payable to each state's outside counsel(s). The amounts payable under the fee agreements were awarded by an arbitration panel and are final, binding, and non-appealable.

The obligations under the fee payment agreements are several and not joint obligations of each Original Participating Manufacturer (OPM) and are made quarterly based on relative market share, with quarterly payments generally subject to an aggregate national cap of $125 million and an annual aggregate national cap of $500 million. These caps apply to any amounts awarded by the arbitration panel to settling states' outside counsel, to outside counsel fees arising out of a settlement of any class action tobacco case and to counsel fees arising out of the resolution of any case pursuant to federal legislation.

Fitch's rating is based on the credit quality of the bonds, which is based on the credit quality of the fee awards payable to the participating firms by the OPMs. Since the amounts payable under the fee payment agreements are based on relative market share, Fitch views this obligation as an industry obligation. Consequently, the rating of these bonds is capped at Fitch's assessment of the domestic tobacco industry. Fitch currently deems the domestic tobacco industry to be rated 'BBB' on an unsecured basis.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.