Fitch Takes Various Actions on Inland Empire Tobacco Securitization Corporation Series 2007

Source from:  Business Wire 07/30/2010

NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms five and downgrades two classes from Inland Empire Tobacco Securitization Corporation Series 2007, as follows: Current interest turbo term bonds: --$55,150,000 due June 1, 2021 affirmed at 'BB'; Outlook Negative; --$32,500,000 due June 1, 2021 affirmed at 'BB'; Outlook Negative. Convertible capital appreciation turbo term bond: --$53,757,703 due June 1, 2026 affirmed at 'B'; Outlook Negative. Capital appreciation bonds (CABs): --2007C-1 downgraded to 'B' from 'B+'; Outlook Negative; --2007C-2 downgraded to 'B' from 'B+'; Outlook Negative; --2007D affirmed at 'B'; Outlook Negative; --2007E affirmed at 'B-'; Outlook Negative. The various actions are based on the Structured Finance Criteria 'Global Structured Finance Rating Criteria' published Sept. 30, 2009 and the level of stress each class is able to withstand as indicated by Fitch's 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 between 0.3% to 2.5%. The cash flow model accounts for the amount of the MSA payment that the transaction has received in 2010, 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. Fitch also accounted for the highly speculative nature of this transaction tied to the Riverside county's share of California's population that is adjusted every 10 years based on the Census, (the next adjustment is in 2011). Longer-term bonds are exposed to more uncertainty as they are subject to more population share adjustments. The 2007C-1 and 2007C-2 CABs are being downgraded to 'B' from 'B+', as they continue to be come under stress from the reduced cash flow amount, and the Outlook for all of the bonds remains Negative as a result of the concern that this stress will continue. Applicable Criteria available on Fitch's web site at 'www.fitchratings.com': --'Global Structured Finance Rating Criteria', dated Sept. 30, 2009. Additional information is available at 'www.fitchratings.com'. Related Research: Global Structured Finance Rating Criteria http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=469406 Enditem