One Rating Raised On Tobacco Settlement Finance Authority (West Virginia) Series One Rating Affirmed

Stocks and Financial Services Press Releases Tuesday January 30, 2018 09:41
NEW YORK--30 Jan--S&P Global Ratings

NEW YORK (S&P Global Ratings) Jan. 29, 2018--S&P Global Ratings today raised its ratings on the class 2007A bonds from Tobacco Settlement Finance Authority series 2007 from 'B- (sf)' to 'B+ (sf)'. At the same time, we affirmed our 'CCC (sf)' rating on the class 2007B bonds from the same transaction (see list). The bonds were originally issued in 2007.

The rating actions reflect our view of the performance of the transaction under a series of stressed cash flow scenarios, including:
  • A cigarette volume decline test that assesses if the transaction can withstand annual declines in cigarette shipments;
  • Payment disruptions by the largest of the participating manufacturers, by market share, at various points over the transaction's term to reflect a Chapter 11 bankruptcy filing; and
  • A liquidity stress test to account for settlement amount disputes by participating manufacturers, as a result of changes to their market share, which has generally shifted to nonparticipating manufacturers.
We raised our rating on the class 2007A bonds as they can now make timely interest and principal payments commensurate with a higher rating level.
At the same time, we affirmed our rating on the class 2007B bonds, which reflects our view of the ability of the 2007B class to pay timely interest and principal payments under various stress scenarios.

Tobacco Settlement Finance Authority's series 2007 issuance consists of the series 2007A current interest turbo term bonds and series 2007B capital appreciation turbo term bonds, both maturing in 2047. Capital appreciation bonds generally capitalize interest until any senior notes have been paid in full and therefore tend to have the most risk.

Our analysis also reflects developments within the tobacco industry. We view the U.S. tobacco industry as having a stable ratings outlook based on the high brand equity and pricing power of the top three manufacturers' conventional cigarette brands. In our view, this should help offset ongoing cigarette volume declines and allow for sustained cash flows. However, changing regulations and ongoing litigation risk are constraining factors the industry faces.

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