Fitch Affs Tobacco Settlement Financing Corp. (U.S. Virgin Islands), Series 2006

Source from:  Fitch Ratings 06/24/2009

Fitch Ratings affirms 3 classes from Tobacco Settlement Financing Corporation (U.S. Virgin Islands), series 2006, as follows: --$4,764,709 series 2006A subordinate turbo capital appreciation bonds due May 15, 2035 at 'BBB', Stable Outlook ; --$512,471 series 2006B subordinate turbo capital appreciation bonds due May 15, 2035 at 'BBB-', Positive Outlook; --$867,690 series 2006C subordinate turbo capital appreciation bonds due May 15, 2035 at 'BB', Positive Outlook. The affirmations are based on the level of stress each class is able to withstand as indicated by Fitch's new breakeven cash flow model. The model indicates, for each class of bonds, the level of the annual Master Settlement Agreement (MSA) payment percent change the trust would be able to sustain and still pay the bond in full by the legal final date. The base case 'B' corresponds to a 1% increase in the MSA payment received by the trust every year. The 'BBB' category corresponds to an annual MSA payment decline of up to 1.25%. The cash flow model accounts for the amount of the latest MSA payment that the transaction has received, the capital structure, the reserve account, and the bonds' legal final dates. The bond payments are also tied to the tobacco companies making MSA payments. Tobacco settlement bonds can be rated up to 'BBB+' based on Fitch's view of the whole tobacco industry and the executory nature of the MSA. In the event of a bankruptcy of a tobacco company, Fitch believes there is an incentive for the company to continue to make payments under the MSA. The series 2006A bond is affirmed at 'BBB' with a Stable Rating Outlook as supported by the model output. The series 2006B and 2006C bonds are affirmed at 'BBB-' and 'BB', respectively. Both bonds are assigned a Positive Outlook because a relatively stable MSA cash flow in the future is likely to lead to an upgrade of the ratings. Tobacco Settlement Financing Corporation (U.S. Virgin Islands), Series 2006 bonds are secured by the pledged payments made under the MSA. The pledged payments consist of U.S. Virgin Islands' share of perpetual annual payments and strategic contribution payments by the original participating manufacturers (OPMs) and subsequent participating manufacturers (SPMs). The OPMs at the time of the original agreement were Philip Morris USA, Inc.; R.J. Reynolds Tobacco Company; Brown & Williamson Tobacco Corporation; and Lorillard Tobacco Company. The amount of annual MSA payments received by the trust are mainly affected by the tobacco consumption level and inflation rate, as well as state specific adjustments, as specified in the MSA. 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. Enditem