Moody's on Michigan Tobacco Settlement Auth

Source from:  today.reuters.com Mon Aug 6, 2007 08/07/2007

Standard & Poor's Ratings Services today assigned its preliminary ratings to Michigan Tobacco Settlement Finance Authority's $527.307 million tobacco settlement asset-backed bonds series 2007. The outlook is negative (see list). The preliminary ratings are based on information as of Aug. 6, 2007. Subsequent information may result in the assignment of final ratings that differ from the preliminary ratings. The preliminary ratings reflect the overall strength of the pledged collateral, the strong bond structure, and the reserve fund. Michigan Tobacco Settlement Finance Authority is a special-purpose entity created by the state of Michigan. The pledged collateral provides for the coverage of debt service under a series of stressed cash flow scenarios, including: -- Declines in U.S. cigarette consumption that are steeper than the historically observed declines; -- Payment stoppages by certain participating manufacturers (PMs) at various times over the term of the transaction due to Chapter 11 bankruptcy filings by the various PMs; and -- A liquidity stress reflecting the potential for the PMs to make continued deposits of a portion of the annual master settlement agreement payments into a disputed payments account. The negative outlook assigned to the bonds addresses the risk that the ratings could be lowered if the duration of the liquidity stress is longer than what is currently assumed, or if future recoveries are lower than what is currently assumed. The negative outlook also reflects ongoing litigation challenging the MSA and model statutes, the risk of further downward adjustments to cigarette volume declines, future shifts in market share away from the PMs to NPMs, and the court's or arbitration panel's ability to decide that a state that has securitized its interests in payments under the MSA has failed to diligently enforce its model statute. Enditem